Correlation Between Associated Industries and Super Dragon

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

By analyzing existing cross correlation between Associated Industries China and Super Dragon Technology, you can compare the effects of market volatilities on Associated Industries and Super Dragon 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 Associated Industries with a short position of Super Dragon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated Industries and Super Dragon.

Diversification Opportunities for Associated Industries and Super Dragon

0.35

Correlation Coefficient

Associated Industries  Super Dragon

Weak diversification

The 3 months correlation between Associated and Super is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Associated Industries China and Super Dragon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Super Dragon Technology and Associated Industries 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 Associated Industries China are associated (or correlated) with Super Dragon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Super Dragon Technology has no effect on the direction of Associated Industries i.e., Associated Industries and Super Dragon go up and down completely randomly.

Pair Corralation between Associated Industries and Super Dragon

Assuming the 90 days trading horizon Associated Industries China is expected to under-perform the Super Dragon. But the stock apears to be less risky and, when comparing its historical volatility, Associated Industries China is 1.46 times less risky than Super Dragon. The stock trades about -0.02 of its potential returns per unit of risk. The Super Dragon Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,870  in Super Dragon Technology on December 25, 2024 and sell it today you would earn a total of  75.00  from holding Super Dragon Technology or generate 2.61% return on investment over 90 days.

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

Associated Industries China  vs.  Super Dragon Technology

Associated Industries

Risk-Adjusted Performance

Very Weak

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

Super Dragon Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Super Dragon Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Super Dragon 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 Associated Industries and Super Dragon

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

The idea behind Associated Industries China and Super Dragon Technology 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.