Correlation Between Aerospace Industrial and Century Wind

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

By analyzing existing cross correlation between Aerospace Industrial Development and Century Wind Power, you can compare the effects of market volatilities on Aerospace Industrial and Century Wind 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 Aerospace Industrial with a short position of Century Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace Industrial and Century Wind.

Diversification Opportunities for Aerospace Industrial and Century Wind

-0.09

Correlation Coefficient

Aerospace Industrial  Century Wind

Good diversification

The 3 months correlation between Aerospace and Century is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Industrial Developme and Century Wind Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Wind Power and Aerospace Industrial 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 Aerospace Industrial Development are associated (or correlated) with Century Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Wind Power has no effect on the direction of Aerospace Industrial i.e., Aerospace Industrial and Century Wind go up and down completely randomly.

Pair Corralation between Aerospace Industrial and Century Wind

Assuming the 90 days trading horizon Aerospace Industrial Development is expected to generate 0.73 times more return on investment than Century Wind. However, Aerospace Industrial Development is 1.37 times less risky than Century Wind. It trades about 0.16 of its potential returns per unit of risk. Century Wind Power is currently generating about -0.03 per unit of risk. If you would invest  4,400  in Aerospace Industrial Development on December 24, 2024 and sell it today you would earn a total of  770.00  from holding Aerospace Industrial Development or generate 17.5% return on investment over 90 days.

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

Aerospace Industrial Developme  vs.  Century Wind Power

Aerospace Industrial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerospace Industrial Development are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Aerospace Industrial showed solid returns over the last few months and may actually be approaching a breakup point.

Century Wind Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Aerospace Industrial and Century Wind

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

The idea behind Aerospace Industrial Development and Century Wind Power 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.