Correlation Between Total Soft and EV Advanced

Can any of the company-specific risk be diversified away by investing in both Total Soft and EV Advanced 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 EV Advanced 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 EV Advanced Material, you can compare the effects of market volatilities on Total Soft and EV Advanced 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 EV Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Soft and EV Advanced.

Diversification Opportunities for Total Soft and EV Advanced

-0.21

Correlation Coefficient

Total Soft  EV Advanced

Very good diversification

The 3 months correlation between Total and 131400 is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank and EV Advanced Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EV Advanced Material 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 EV Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EV Advanced Material has no effect on the direction of Total Soft i.e., Total Soft and EV Advanced go up and down completely randomly.

Pair Corralation between Total Soft and EV Advanced

Assuming the 90 days trading horizon Total Soft Bank is expected to generate 1.07 times more return on investment than EV Advanced. However, Total Soft is 1.07 times more volatile than EV Advanced Material. It trades about 0.02 of its potential returns per unit of risk. EV Advanced Material is currently generating about -0.08 per unit of risk. If you would invest  470,000  in Total Soft Bank on September 3, 2024 and sell it today you would lose (2,000) from holding Total Soft Bank or give up 0.43% of portfolio value over 90 days.

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

Total Soft Bank  vs.  EV Advanced Material

Total Soft Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Total Soft Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Total Soft is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EV Advanced Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EV Advanced Material 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Total Soft and EV Advanced

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

The idea behind Total Soft Bank and EV Advanced Material 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.