Correlation Between ABCO Electronics and Sangshin Electronics

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

Diversification Opportunities for ABCO Electronics and Sangshin Electronics

0.32

Correlation Coefficient

ABCO Electronics  Sangshin Electronics

Weak diversification

The 3 months correlation between ABCO and Sangshin is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and Sangshin Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sangshin Electronics 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 Sangshin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sangshin Electronics has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and Sangshin Electronics go up and down completely randomly.

Pair Corralation between ABCO Electronics and Sangshin Electronics

Assuming the 90 days trading horizon ABCO Electronics Co is expected to generate 2.37 times more return on investment than Sangshin Electronics. However, ABCO Electronics is 2.37 times more volatile than Sangshin Electronics Co. It trades about 0.1 of its potential returns per unit of risk. Sangshin Electronics Co is currently generating about -0.01 per unit of risk. If you would invest  441,000  in ABCO Electronics Co on December 2, 2024 and sell it today you would earn a total of  86,000  from holding ABCO Electronics Co or generate 19.5% return on investment over 90 days.

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

ABCO Electronics Co  vs.  Sangshin Electronics 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.

Sangshin Electronics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ABCO Electronics and Sangshin Electronics

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

The idea behind ABCO Electronics Co and Sangshin 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.