Correlation Between Contemporary Amperex and Allied Machinery

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

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

Diversification Opportunities for Contemporary Amperex and Allied Machinery

0.69

Correlation Coefficient

Contemporary Amperex  Allied Machinery

Poor diversification

The 3 months correlation between Contemporary and Allied is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Contemporary Amperex Technolog and Allied Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Machinery and Contemporary Amperex 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 Contemporary Amperex Technology are associated (or correlated) with Allied Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Machinery has no effect on the direction of Contemporary Amperex i.e., Contemporary Amperex and Allied Machinery go up and down completely randomly.

Pair Corralation between Contemporary Amperex and Allied Machinery

Assuming the 90 days trading horizon Contemporary Amperex Technology is expected to under-perform the Allied Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Contemporary Amperex Technology is 2.7 times less risky than Allied Machinery. The stock trades about -0.12 of its potential returns per unit of risk. The Allied Machinery Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,669  in Allied Machinery Co on October 8, 2024 and sell it today you would earn a total of  50.00  from holding Allied Machinery Co or generate 3.0% return on investment over 90 days.

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

Contemporary Amperex Technolog  vs.  Allied Machinery Co

Contemporary Amperex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Contemporary Amperex Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Allied Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Contemporary Amperex and Allied Machinery

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

The idea behind Contemporary Amperex Technology and Allied Machinery 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.