Correlation Between Advantech and NEXCOM International

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

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

Diversification Opportunities for Advantech and NEXCOM International

0.7

Correlation Coefficient

Advantech  NEXCOM International

Poor diversification

The 3 months correlation between Advantech and NEXCOM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and NEXCOM International Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXCOM International and Advantech 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 Advantech Co are associated (or correlated) with NEXCOM International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXCOM International has no effect on the direction of Advantech i.e., Advantech and NEXCOM International go up and down completely randomly.

Pair Corralation between Advantech and NEXCOM International

Assuming the 90 days trading horizon Advantech is expected to generate 3.76 times less return on investment than NEXCOM International. But when comparing it to its historical volatility, Advantech Co is 2.12 times less risky than NEXCOM International. It trades about 0.11 of its potential returns per unit of risk. NEXCOM International Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,910  in NEXCOM International Co on December 24, 2024 and sell it today you would earn a total of  3,100  from holding NEXCOM International Co or generate 52.45% return on investment over 90 days.

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

Advantech Co  vs.  NEXCOM International Co

Advantech

Risk-Adjusted Performance

OK

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

NEXCOM International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEXCOM International Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, NEXCOM International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantech and NEXCOM International

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

The idea behind Advantech Co and NEXCOM International 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.