Correlation Between Allis Electric and Feng Ching

Can any of the company-specific risk be diversified away by investing in both Allis Electric and Feng Ching 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 Allis Electric and Feng Ching into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Allis Electric Co and Feng Ching Metal, you can compare the effects of market volatilities on Allis Electric and Feng Ching 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 Allis Electric with a short position of Feng Ching. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allis Electric and Feng Ching.

Diversification Opportunities for Allis Electric and Feng Ching

0.78

Correlation Coefficient

Allis Electric  Feng Ching

Poor diversification

The 3 months correlation between Allis and Feng is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Allis Electric Co and Feng Ching Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Ching Metal and Allis Electric 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 Allis Electric Co are associated (or correlated) with Feng Ching. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Ching Metal has no effect on the direction of Allis Electric i.e., Allis Electric and Feng Ching go up and down completely randomly.

Pair Corralation between Allis Electric and Feng Ching

Assuming the 90 days trading horizon Allis Electric Co is expected to under-perform the Feng Ching. But the stock apears to be less risky and, when comparing its historical volatility, Allis Electric Co is 1.11 times less risky than Feng Ching. The stock trades about -0.02 of its potential returns per unit of risk. The Feng Ching Metal is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,925  in Feng Ching Metal on December 4, 2024 and sell it today you would earn a total of  305.00  from holding Feng Ching Metal or generate 15.84% return on investment over 90 days.

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

Allis Electric Co  vs.  Feng Ching Metal

Allis Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allis Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Allis Electric is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Feng Ching Metal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Feng Ching Metal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Feng Ching showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allis Electric and Feng Ching

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

The idea behind Allis Electric Co and Feng Ching Metal 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.