Correlation Between Great Computer and PlayNitride

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

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

Diversification Opportunities for Great Computer and PlayNitride

-0.03

Correlation Coefficient

Great Computer  PlayNitride

Good diversification

The 3 months correlation between Great and PlayNitride is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Great Computer and PlayNitride in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PlayNitride and Great Computer 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 Great Computer are associated (or correlated) with PlayNitride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PlayNitride has no effect on the direction of Great Computer i.e., Great Computer and PlayNitride go up and down completely randomly.

Pair Corralation between Great Computer and PlayNitride

Assuming the 90 days trading horizon Great Computer is expected to under-perform the PlayNitride. But the stock apears to be less risky and, when comparing its historical volatility, Great Computer is 1.01 times less risky than PlayNitride. The stock trades about -0.07 of its potential returns per unit of risk. The PlayNitride is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  16,600  in PlayNitride on October 22, 2024 and sell it today you would earn a total of  4,750  from holding PlayNitride or generate 28.61% return on investment over 90 days.

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

Great Computer  vs.  PlayNitride

Great Computer

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great Computer are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Great Computer showed solid returns over the last few months and may actually be approaching a breakup point.

PlayNitride

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PlayNitride are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PlayNitride showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Computer and PlayNitride

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

The idea behind Great Computer and PlayNitride 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.