Correlation Between ABCO Electronics and INFINITT Healthcare

Can any of the company-specific risk be diversified away by investing in both ABCO Electronics and INFINITT Healthcare 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 INFINITT Healthcare 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 INFINITT Healthcare Co, you can compare the effects of market volatilities on ABCO Electronics and INFINITT Healthcare 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 INFINITT Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABCO Electronics and INFINITT Healthcare.

Diversification Opportunities for ABCO Electronics and INFINITT Healthcare

0.12

Correlation Coefficient

ABCO Electronics  INFINITT Healthcare

Average diversification

The 3 months correlation between ABCO and INFINITT is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and INFINITT Healthcare Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INFINITT Healthcare 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 INFINITT Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INFINITT Healthcare has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and INFINITT Healthcare go up and down completely randomly.

Pair Corralation between ABCO Electronics and INFINITT Healthcare

Assuming the 90 days trading horizon ABCO Electronics Co is expected to under-perform the INFINITT Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, ABCO Electronics Co is 1.71 times less risky than INFINITT Healthcare. The stock trades about -0.14 of its potential returns per unit of risk. The INFINITT Healthcare Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  423,000  in INFINITT Healthcare Co on December 1, 2024 and sell it today you would earn a total of  142,000  from holding INFINITT Healthcare Co or generate 33.57% return on investment over 90 days.

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

ABCO Electronics Co  vs.  INFINITT Healthcare Co

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 8 (%) 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.

INFINITT Healthcare

Risk-Adjusted Performance

OK

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

Pair Trading with ABCO Electronics and INFINITT Healthcare

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

The idea behind ABCO Electronics Co and INFINITT Healthcare 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.