Correlation Between Total Soft and ABCO Electronics

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

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

Diversification Opportunities for Total Soft and ABCO Electronics

-0.06

Correlation Coefficient

Total Soft  ABCO Electronics

Good diversification

The 3 months correlation between Total and ABCO is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics and Total Soft 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 Total Soft Bank 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 Total Soft i.e., Total Soft and ABCO Electronics go up and down completely randomly.

Pair Corralation between Total Soft and ABCO Electronics

Assuming the 90 days trading horizon Total Soft Bank is expected to generate 2.42 times more return on investment than ABCO Electronics. However, Total Soft is 2.42 times more volatile than ABCO Electronics Co. It trades about 0.14 of its potential returns per unit of risk. ABCO Electronics Co is currently generating about 0.1 per unit of risk. If you would invest  488,500  in Total Soft Bank on December 1, 2024 and sell it today you would earn a total of  325,500  from holding Total Soft Bank or generate 66.63% return on investment over 90 days.

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

Total Soft Bank  vs.  ABCO Electronics Co

Total Soft Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Soft Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Total Soft sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Total Soft and ABCO Electronics

The main advantage of trading using opposite Total Soft and ABCO Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Soft 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 Total Soft Bank 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.