Correlation Between Sports Gear and Pan Asia

Can any of the company-specific risk be diversified away by investing in both Sports Gear and Pan Asia 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 Sports Gear and Pan Asia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sports Gear Co and Pan Asia Chemical, you can compare the effects of market volatilities on Sports Gear and Pan Asia 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 Sports Gear with a short position of Pan Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sports Gear and Pan Asia.

Diversification Opportunities for Sports Gear and Pan Asia

0.01

Correlation Coefficient

Sports Gear  Pan Asia

Significant diversification

The 3 months correlation between Sports and Pan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sports Gear Co and Pan Asia Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Chemical and Sports Gear 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 Sports Gear Co are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Chemical has no effect on the direction of Sports Gear i.e., Sports Gear and Pan Asia go up and down completely randomly.

Pair Corralation between Sports Gear and Pan Asia

Assuming the 90 days trading horizon Sports Gear Co is expected to generate 1.7 times more return on investment than Pan Asia. However, Sports Gear is 1.7 times more volatile than Pan Asia Chemical. It trades about 0.08 of its potential returns per unit of risk. Pan Asia Chemical is currently generating about 0.03 per unit of risk. If you would invest  6,500  in Sports Gear Co on October 22, 2024 and sell it today you would earn a total of  6,050  from holding Sports Gear Co or generate 93.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Sports Gear Co  vs.  Pan Asia Chemical

Sports Gear

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sports Gear Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sports Gear showed solid returns over the last few months and may actually be approaching a breakup point.

Pan Asia Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan Asia Chemical 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 Sports Gear and Pan Asia

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

The idea behind Sports Gear Co and Pan Asia Chemical 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.