Correlation Between Highlight Tech and Advanced Ceramic

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

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

Diversification Opportunities for Highlight Tech and Advanced Ceramic

-0.25

Correlation Coefficient

Highlight Tech  Advanced Ceramic

Very good diversification

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

Pair Corralation between Highlight Tech and Advanced Ceramic

Assuming the 90 days trading horizon Highlight Tech is expected to under-perform the Advanced Ceramic. But the stock apears to be less risky and, when comparing its historical volatility, Highlight Tech is 1.7 times less risky than Advanced Ceramic. The stock trades about -0.21 of its potential returns per unit of risk. The Advanced Ceramic X is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  17,400  in Advanced Ceramic X on October 21, 2024 and sell it today you would lose (1,500) from holding Advanced Ceramic X or give up 8.62% of portfolio value over 90 days.

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

Highlight Tech  vs.  Advanced Ceramic X

Highlight Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highlight Tech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Advanced Ceramic X

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Ceramic X has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Highlight Tech and Advanced Ceramic

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

The idea behind Highlight Tech and Advanced Ceramic X 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.