Correlation Between ABCO Electronics and Polaris Office

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

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

Diversification Opportunities for ABCO Electronics and Polaris Office

-0.34

Correlation Coefficient

ABCO Electronics  Polaris Office

Very good diversification

The 3 months correlation between ABCO and Polaris is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and Polaris Office Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polaris Office Corp and ABCO Electronics 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 ABCO Electronics Co are associated (or correlated) with Polaris Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polaris Office Corp has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and Polaris Office go up and down completely randomly.

Pair Corralation between ABCO Electronics and Polaris Office

Assuming the 90 days trading horizon ABCO Electronics is expected to generate 10.57 times less return on investment than Polaris Office. But when comparing it to its historical volatility, ABCO Electronics Co is 1.51 times less risky than Polaris Office. It trades about 0.01 of its potential returns per unit of risk. Polaris Office Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  486,000  in Polaris Office Corp on October 20, 2024 and sell it today you would earn a total of  69,000  from holding Polaris Office Corp or generate 14.2% return on investment over 90 days.

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

ABCO Electronics Co  vs.  Polaris Office Corp

ABCO Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Polaris Office Corp

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with ABCO Electronics and Polaris Office

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

The idea behind ABCO Electronics Co and Polaris Office Corp 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.