Correlation Between State Grid and Advanced Technology

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

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

Diversification Opportunities for State Grid and Advanced Technology

0.66

Correlation Coefficient

State Grid  Advanced Technology

Poor diversification

The 3 months correlation between State and Advanced is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding State Grid InformationCommunic and Advanced Technology Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Technology and State Grid 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 State Grid InformationCommunication are associated (or correlated) with Advanced Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Technology has no effect on the direction of State Grid i.e., State Grid and Advanced Technology go up and down completely randomly.

Pair Corralation between State Grid and Advanced Technology

Assuming the 90 days trading horizon State Grid InformationCommunication is expected to under-perform the Advanced Technology. In addition to that, State Grid is 1.18 times more volatile than Advanced Technology Materials. It trades about -0.38 of its total potential returns per unit of risk. Advanced Technology Materials is currently generating about -0.31 per unit of volatility. If you would invest  1,210  in Advanced Technology Materials on October 6, 2024 and sell it today you would lose (161.00) from holding Advanced Technology Materials or give up 13.31% of portfolio value over 90 days.

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

State Grid InformationCommunic  vs.  Advanced Technology Materials

State Grid Informati

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Grid InformationCommunication 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.

Advanced Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Technology Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Advanced Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with State Grid and Advanced Technology

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

The idea behind State Grid InformationCommunication and Advanced Technology Materials 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.