Correlation Between Bus Online and Aerospace

Can any of the company-specific risk be diversified away by investing in both Bus Online and Aerospace at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bus Online and Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bus Online Co and Aerospace Hi Tech Holding, you can compare the effects of market volatilities on Bus Online and Aerospace and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bus Online with a short position of Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bus Online and Aerospace.

Diversification Opportunities for Bus Online and Aerospace

0.78

Correlation Coefficient

Bus Online  Aerospace

Poor diversification

The 3 months correlation between Bus and Aerospace is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bus Online Co and Aerospace Hi Tech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerospace Hi Tech and Bus Online is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bus Online Co are associated (or correlated) with Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerospace Hi Tech has no effect on the direction of Bus Online i.e., Bus Online and Aerospace go up and down completely randomly.

Pair Corralation between Bus Online and Aerospace

Assuming the 90 days trading horizon Bus Online Co is expected to under-perform the Aerospace. In addition to that, Bus Online is 1.87 times more volatile than Aerospace Hi Tech Holding. It trades about -0.03 of its total potential returns per unit of risk. Aerospace Hi Tech Holding is currently generating about -0.04 per unit of volatility. If you would invest  1,166  in Aerospace Hi Tech Holding on September 24, 2024 and sell it today you would lose (25.00) from holding Aerospace Hi Tech Holding or give up 2.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bus Online Co  vs.  Aerospace Hi Tech Holding

Bus Online

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bus Online Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bus Online sustained solid returns over the last few months and may actually be approaching a breakup point.

Aerospace Hi Tech

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerospace Hi Tech Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bus Online and Aerospace

The main advantage of trading using opposite Bus Online and Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bus Online position performs unexpectedly, Aerospace can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Aerospace will offset losses from the drop in Aerospace's long position.

The idea behind Bus Online Co and Aerospace Hi Tech Holding pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.