Correlation Between Agricultural Bank and Central Plains

Can any of the company-specific risk be diversified away by investing in both Agricultural Bank and Central Plains 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 Agricultural Bank and Central Plains into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Agricultural Bank of and Central Plains Environment, you can compare the effects of market volatilities on Agricultural Bank and Central Plains 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 Agricultural Bank with a short position of Central Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agricultural Bank and Central Plains.

Diversification Opportunities for Agricultural Bank and Central Plains

0.25

Correlation Coefficient

Agricultural Bank  Central Plains

Modest diversification

The 3 months correlation between Agricultural and Central is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Agricultural Bank of and Central Plains Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Plains Envir and Agricultural Bank 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 Agricultural Bank of are associated (or correlated) with Central Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Plains Envir has no effect on the direction of Agricultural Bank i.e., Agricultural Bank and Central Plains go up and down completely randomly.

Pair Corralation between Agricultural Bank and Central Plains

Assuming the 90 days trading horizon Agricultural Bank of is expected to under-perform the Central Plains. But the stock apears to be less risky and, when comparing its historical volatility, Agricultural Bank of is 1.06 times less risky than Central Plains. The stock trades about -0.07 of its potential returns per unit of risk. The Central Plains Environment is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  887.00  in Central Plains Environment on December 28, 2024 and sell it today you would lose (30.00) from holding Central Plains Environment or give up 3.38% of portfolio value over 90 days.

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

Agricultural Bank of  vs.  Central Plains Environment

Agricultural Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agricultural Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Agricultural Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Central Plains Envir

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Plains Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Plains is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Agricultural Bank and Central Plains

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

The idea behind Agricultural Bank of and Central Plains Environment 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.