Correlation Between Falcon Power and Roundtop Machinery

Can any of the company-specific risk be diversified away by investing in both Falcon Power and Roundtop Machinery 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 Falcon Power and Roundtop Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Falcon Power Co and Roundtop Machinery Industries, you can compare the effects of market volatilities on Falcon Power and Roundtop Machinery 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 Falcon Power with a short position of Roundtop Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Falcon Power and Roundtop Machinery.

Diversification Opportunities for Falcon Power and Roundtop Machinery

0.75

Correlation Coefficient

Falcon Power  Roundtop Machinery

Poor diversification

The 3 months correlation between Falcon and Roundtop is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Power Co and Roundtop Machinery Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundtop Machinery and Falcon Power 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 Falcon Power Co are associated (or correlated) with Roundtop Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundtop Machinery has no effect on the direction of Falcon Power i.e., Falcon Power and Roundtop Machinery go up and down completely randomly.

Pair Corralation between Falcon Power and Roundtop Machinery

Assuming the 90 days trading horizon Falcon Power Co is expected to generate 0.71 times more return on investment than Roundtop Machinery. However, Falcon Power Co is 1.41 times less risky than Roundtop Machinery. It trades about -0.03 of its potential returns per unit of risk. Roundtop Machinery Industries is currently generating about -0.13 per unit of risk. If you would invest  1,870  in Falcon Power Co on September 16, 2024 and sell it today you would lose (95.00) from holding Falcon Power Co or give up 5.08% of portfolio value over 90 days.

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

Falcon Power Co  vs.  Roundtop Machinery Industries

Falcon Power

Risk-Adjusted Performance

0 of 100

Very Weak

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

Roundtop Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roundtop Machinery Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Falcon Power and Roundtop Machinery

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

The idea behind Falcon Power Co and Roundtop Machinery Industries 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.