Correlation Between Roundtop Machinery and Awea Mechantronic

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

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

Diversification Opportunities for Roundtop Machinery and Awea Mechantronic

0.42

Correlation Coefficient

Roundtop Machinery  Awea Mechantronic

Very weak diversification

The 3 months correlation between Roundtop and Awea is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Roundtop Machinery Industries and Awea Mechantronic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Awea Mechantronic and Roundtop Machinery 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 Roundtop Machinery Industries are associated (or correlated) with Awea Mechantronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Awea Mechantronic has no effect on the direction of Roundtop Machinery i.e., Roundtop Machinery and Awea Mechantronic go up and down completely randomly.

Pair Corralation between Roundtop Machinery and Awea Mechantronic

Assuming the 90 days trading horizon Roundtop Machinery Industries is expected to generate 2.24 times more return on investment than Awea Mechantronic. However, Roundtop Machinery is 2.24 times more volatile than Awea Mechantronic Co. It trades about 0.11 of its potential returns per unit of risk. Awea Mechantronic Co is currently generating about 0.02 per unit of risk. If you would invest  1,790  in Roundtop Machinery Industries on December 5, 2024 and sell it today you would earn a total of  2,135  from holding Roundtop Machinery Industries or generate 119.27% return on investment over 90 days.

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

Roundtop Machinery Industries  vs.  Awea Mechantronic Co

Roundtop Machinery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roundtop Machinery Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Roundtop Machinery may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Awea Mechantronic

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Awea Mechantronic Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Awea Mechantronic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Roundtop Machinery and Awea Mechantronic

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

The idea behind Roundtop Machinery Industries and Awea Mechantronic 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.