Correlation Between Falcon Power and Information Technology

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

Diversification Opportunities for Falcon Power and Information Technology

-0.2

Correlation Coefficient

Falcon Power  Information Technology

Good diversification

The 3 months correlation between Falcon and Information is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Power Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology 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 Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Falcon Power i.e., Falcon Power and Information Technology go up and down completely randomly.

Pair Corralation between Falcon Power and Information Technology

Assuming the 90 days trading horizon Falcon Power is expected to generate 2.94 times less return on investment than Information Technology. But when comparing it to its historical volatility, Falcon Power Co is 3.12 times less risky than Information Technology. It trades about 0.13 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,720  in Information Technology Total on December 4, 2024 and sell it today you would earn a total of  310.00  from holding Information Technology Total or generate 6.57% return on investment over 90 days.

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

Falcon Power Co  vs.  Information Technology Total

Falcon Power

Risk-Adjusted Performance

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.

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falcon Power and Information Technology

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

The idea behind Falcon Power Co and Information Technology Total 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.