Correlation Between GS Engineering and Top Material

Can any of the company-specific risk be diversified away by investing in both GS Engineering and Top Material 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 GS Engineering and Top Material into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GS Engineering Construction and Top Material Co, you can compare the effects of market volatilities on GS Engineering and Top Material 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 GS Engineering with a short position of Top Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of GS Engineering and Top Material.

Diversification Opportunities for GS Engineering and Top Material

0.59

Correlation Coefficient

GS Engineering  Top Material

Very weak diversification

The 3 months correlation between 006360 and Top is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding GS Engineering Construction and Top Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Top Material and GS Engineering 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 GS Engineering Construction are associated (or correlated) with Top Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Top Material has no effect on the direction of GS Engineering i.e., GS Engineering and Top Material go up and down completely randomly.

Pair Corralation between GS Engineering and Top Material

Assuming the 90 days trading horizon GS Engineering Construction is expected to under-perform the Top Material. But the stock apears to be less risky and, when comparing its historical volatility, GS Engineering Construction is 2.57 times less risky than Top Material. The stock trades about 0.0 of its potential returns per unit of risk. The Top Material Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,750,000  in Top Material Co on December 23, 2024 and sell it today you would earn a total of  380,000  from holding Top Material Co or generate 13.82% return on investment over 90 days.

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

GS Engineering Construction  vs.  Top Material Co

GS Engineering Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days GS Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GS Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Top Material

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Top Material Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Top Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GS Engineering and Top Material

The main advantage of trading using opposite GS Engineering and Top Material positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GS Engineering position performs unexpectedly, Top Material 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 Top Material will offset losses from the drop in Top Material's long position.

The idea behind GS Engineering Construction and Top Material Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.