Correlation Between ABC TRANSPORT and GUINEA INSURANCE

Can any of the company-specific risk be diversified away by investing in both ABC TRANSPORT and GUINEA INSURANCE 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 GUINEA INSURANCE 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 GUINEA INSURANCE PLC, you can compare the effects of market volatilities on ABC TRANSPORT and GUINEA INSURANCE 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 GUINEA INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC TRANSPORT and GUINEA INSURANCE.

Diversification Opportunities for ABC TRANSPORT and GUINEA INSURANCE

-0.31

Correlation Coefficient

ABC TRANSPORT  GUINEA INSURANCE

Very good diversification

The 3 months correlation between ABC and GUINEA is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and GUINEA INSURANCE PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GUINEA INSURANCE 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 GUINEA INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GUINEA INSURANCE PLC has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and GUINEA INSURANCE go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and GUINEA INSURANCE

Assuming the 90 days trading horizon ABC TRANSPORT PLC is expected to generate 1.21 times more return on investment than GUINEA INSURANCE. However, ABC TRANSPORT is 1.21 times more volatile than GUINEA INSURANCE PLC. It trades about 0.14 of its potential returns per unit of risk. GUINEA INSURANCE PLC is currently generating about 0.02 per unit of risk. If you would invest  78.00  in ABC TRANSPORT PLC on September 6, 2024 and sell it today you would earn a total of  36.00  from holding ABC TRANSPORT PLC or generate 46.15% return on investment over 90 days.

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

ABC TRANSPORT PLC  vs.  GUINEA INSURANCE PLC

ABC TRANSPORT PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABC TRANSPORT PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, ABC TRANSPORT displayed solid returns over the last few months and may actually be approaching a breakup point.

GUINEA INSURANCE PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GUINEA INSURANCE PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, GUINEA INSURANCE is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ABC TRANSPORT and GUINEA INSURANCE

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

The idea behind ABC TRANSPORT PLC and GUINEA INSURANCE 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.