Correlation Between Automobile and ABCO Electronics

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

By analyzing existing cross correlation between Automobile Pc and ABCO Electronics Co, you can compare the effects of market volatilities on Automobile and ABCO Electronics 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 Automobile with a short position of ABCO Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automobile and ABCO Electronics.

Diversification Opportunities for Automobile and ABCO Electronics

-0.73

Correlation Coefficient

Automobile  ABCO Electronics

Pay attention - limited upside

The 3 months correlation between Automobile and ABCO is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Automobile Pc and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics and Automobile 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 Automobile Pc are associated (or correlated) with ABCO Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABCO Electronics has no effect on the direction of Automobile i.e., Automobile and ABCO Electronics go up and down completely randomly.

Pair Corralation between Automobile and ABCO Electronics

Assuming the 90 days trading horizon Automobile Pc is expected to under-perform the ABCO Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Automobile Pc is 2.08 times less risky than ABCO Electronics. The stock trades about -0.16 of its potential returns per unit of risk. The ABCO Electronics Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  456,500  in ABCO Electronics Co on December 26, 2024 and sell it today you would earn a total of  105,500  from holding ABCO Electronics Co or generate 23.11% return on investment over 90 days.

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

Automobile Pc  vs.  ABCO Electronics Co

Automobile Pc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Automobile Pc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ABCO Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABCO Electronics Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABCO Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automobile and ABCO Electronics

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

The idea behind Automobile Pc and ABCO Electronics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.