Correlation Between Aerospace Industrial and Powertech Industrial

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

Diversification Opportunities for Aerospace Industrial and Powertech Industrial

-0.58

Correlation Coefficient

Aerospace Industrial  Powertech Industrial

Excellent diversification

The 3 months correlation between Aerospace and Powertech is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Industrial Developme and Powertech Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powertech Industrial 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 Powertech Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powertech Industrial has no effect on the direction of Aerospace Industrial i.e., Aerospace Industrial and Powertech Industrial go up and down completely randomly.

Pair Corralation between Aerospace Industrial and Powertech Industrial

Assuming the 90 days trading horizon Aerospace Industrial is expected to generate 2.92 times less return on investment than Powertech Industrial. But when comparing it to its historical volatility, Aerospace Industrial Development is 4.33 times less risky than Powertech Industrial. It trades about 0.01 of its potential returns per unit of risk. Powertech Industrial Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,135  in Powertech Industrial Co on October 11, 2024 and sell it today you would lose (35.00) from holding Powertech Industrial Co or give up 1.12% of portfolio value over 90 days.

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

Aerospace Industrial Developme  vs.  Powertech Industrial Co

Aerospace Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Powertech Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Powertech Industrial Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Powertech Industrial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerospace Industrial and Powertech Industrial

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

The idea behind Aerospace Industrial Development and Powertech Industrial 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.