Correlation Between Solution Advanced and ISE Commerce

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

By analyzing existing cross correlation between Solution Advanced Technology and ISE Commerce, you can compare the effects of market volatilities on Solution Advanced and ISE Commerce 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 Solution Advanced with a short position of ISE Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solution Advanced and ISE Commerce.

Diversification Opportunities for Solution Advanced and ISE Commerce

0.61

Correlation Coefficient

Solution Advanced  ISE Commerce

Poor diversification

The 3 months correlation between Solution and ISE is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and ISE Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ISE Commerce and Solution Advanced 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 Solution Advanced Technology are associated (or correlated) with ISE Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ISE Commerce has no effect on the direction of Solution Advanced i.e., Solution Advanced and ISE Commerce go up and down completely randomly.

Pair Corralation between Solution Advanced and ISE Commerce

Assuming the 90 days trading horizon Solution Advanced Technology is expected to generate 0.51 times more return on investment than ISE Commerce. However, Solution Advanced Technology is 1.95 times less risky than ISE Commerce. It trades about -0.13 of its potential returns per unit of risk. ISE Commerce is currently generating about -0.15 per unit of risk. If you would invest  186,000  in Solution Advanced Technology on September 12, 2024 and sell it today you would lose (41,200) from holding Solution Advanced Technology or give up 22.15% of portfolio value over 90 days.

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

Solution Advanced Technology  vs.  ISE Commerce

Solution Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solution Advanced Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ISE Commerce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ISE Commerce has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Solution Advanced and ISE Commerce

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

The idea behind Solution Advanced Technology and ISE Commerce 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.