Correlation Between Top Material and MS Autotech

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

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

Diversification Opportunities for Top Material and MS Autotech

0.75

Correlation Coefficient

Top Material  MS Autotech

Poor diversification

The 3 months correlation between Top and 123040 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and MS Autotech CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MS Autotech CoLtd and Top Material 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 Top Material Co are associated (or correlated) with MS Autotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MS Autotech CoLtd has no effect on the direction of Top Material i.e., Top Material and MS Autotech go up and down completely randomly.

Pair Corralation between Top Material and MS Autotech

Assuming the 90 days trading horizon Top Material Co is expected to generate 1.55 times more return on investment than MS Autotech. However, Top Material is 1.55 times more volatile than MS Autotech CoLtd. It trades about 0.07 of its potential returns per unit of risk. MS Autotech CoLtd is currently generating about 0.05 per unit of risk. If you would invest  2,875,000  in Top Material Co on December 1, 2024 and sell it today you would earn a total of  420,000  from holding Top Material Co or generate 14.61% return on investment over 90 days.

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

Top Material Co  vs.  MS Autotech CoLtd

Top Material

Risk-Adjusted Performance

Modest

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

MS Autotech CoLtd

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MS Autotech CoLtd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MS Autotech may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Top Material and MS Autotech

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

The idea behind Top Material Co and MS Autotech CoLtd 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.