Correlation Between ABC TRANSPORT and CHAMPION BREWERIES

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

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

Diversification Opportunities for ABC TRANSPORT and CHAMPION BREWERIES

-0.47

Correlation Coefficient

ABC TRANSPORT  CHAMPION BREWERIES

Very good diversification

The 3 months correlation between ABC and CHAMPION is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and CHAMPION BREWERIES PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAMPION BREWERIES PLC and ABC TRANSPORT 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 ABC TRANSPORT PLC are associated (or correlated) with CHAMPION BREWERIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAMPION BREWERIES PLC has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and CHAMPION BREWERIES go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and CHAMPION BREWERIES

Assuming the 90 days trading horizon ABC TRANSPORT is expected to generate 4.62 times less return on investment than CHAMPION BREWERIES. In addition to that, ABC TRANSPORT is 1.2 times more volatile than CHAMPION BREWERIES PLC. It trades about 0.02 of its total potential returns per unit of risk. CHAMPION BREWERIES PLC is currently generating about 0.13 per unit of volatility. If you would invest  311.00  in CHAMPION BREWERIES PLC on October 9, 2024 and sell it today you would earn a total of  89.00  from holding CHAMPION BREWERIES PLC or generate 28.62% return on investment over 90 days.

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

ABC TRANSPORT PLC  vs.  CHAMPION BREWERIES PLC

ABC TRANSPORT PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABC TRANSPORT PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, ABC TRANSPORT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CHAMPION BREWERIES PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHAMPION BREWERIES PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, CHAMPION BREWERIES displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC TRANSPORT and CHAMPION BREWERIES

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

The idea behind ABC TRANSPORT PLC and CHAMPION BREWERIES PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.