Correlation Between AAEON Technology and Universal Textile

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

By analyzing existing cross correlation between AAEON Technology and Universal Textile Co, you can compare the effects of market volatilities on AAEON Technology and Universal Textile 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 AAEON Technology with a short position of Universal Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAEON Technology and Universal Textile.

Diversification Opportunities for AAEON Technology and Universal Textile

0.27

Correlation Coefficient

AAEON Technology  Universal Textile

Modest diversification

The 3 months correlation between AAEON and Universal is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding AAEON Technology and Universal Textile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Textile and AAEON Technology 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 AAEON Technology are associated (or correlated) with Universal Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Textile has no effect on the direction of AAEON Technology i.e., AAEON Technology and Universal Textile go up and down completely randomly.

Pair Corralation between AAEON Technology and Universal Textile

Assuming the 90 days trading horizon AAEON Technology is expected to generate 1.76 times more return on investment than Universal Textile. However, AAEON Technology is 1.76 times more volatile than Universal Textile Co. It trades about 0.09 of its potential returns per unit of risk. Universal Textile Co is currently generating about -0.05 per unit of risk. If you would invest  12,700  in AAEON Technology on December 30, 2024 and sell it today you would earn a total of  1,350  from holding AAEON Technology or generate 10.63% return on investment over 90 days.

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

AAEON Technology  vs.  Universal Textile Co

AAEON Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAEON Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, AAEON Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Universal Textile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Textile Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Universal Textile is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with AAEON Technology and Universal Textile

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

The idea behind AAEON Technology and Universal Textile Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.