Correlation Between Organic Special and Solution Advanced

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

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

Diversification Opportunities for Organic Special and Solution Advanced

0.69

Correlation Coefficient

Organic Special  Solution Advanced

Poor diversification

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

Pair Corralation between Organic Special and Solution Advanced

Assuming the 90 days trading horizon Organic Special Pet is expected to generate 0.9 times more return on investment than Solution Advanced. However, Organic Special Pet is 1.11 times less risky than Solution Advanced. It trades about -0.05 of its potential returns per unit of risk. Solution Advanced Technology is currently generating about -0.08 per unit of risk. If you would invest  318,000  in Organic Special Pet on September 15, 2024 and sell it today you would lose (28,000) from holding Organic Special Pet or give up 8.81% of portfolio value over 90 days.

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

Organic Special Pet  vs.  Solution Advanced Technology

Organic Special Pet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Organic Special Pet 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.

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.

Pair Trading with Organic Special and Solution Advanced

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

The idea behind Organic Special Pet and Solution Advanced Technology 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.