Correlation Between ABC TRANSPORT and INTERNATIONAL ENERGY

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

Diversification Opportunities for ABC TRANSPORT and INTERNATIONAL ENERGY

-0.3

Correlation Coefficient

ABC TRANSPORT  INTERNATIONAL ENERGY

Very good diversification

The 3 months correlation between ABC and INTERNATIONAL is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and INTERNATIONAL ENERGY INSURANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERNATIONAL ENERGY 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 INTERNATIONAL ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERNATIONAL ENERGY has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and INTERNATIONAL ENERGY go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and INTERNATIONAL ENERGY

Assuming the 90 days trading horizon ABC TRANSPORT PLC is expected to under-perform the INTERNATIONAL ENERGY. In addition to that, ABC TRANSPORT is 1.01 times more volatile than INTERNATIONAL ENERGY INSURANCE. It trades about -0.05 of its total potential returns per unit of risk. INTERNATIONAL ENERGY INSURANCE is currently generating about 0.18 per unit of volatility. If you would invest  141.00  in INTERNATIONAL ENERGY INSURANCE on October 25, 2024 and sell it today you would earn a total of  49.00  from holding INTERNATIONAL ENERGY INSURANCE or generate 34.75% 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.  INTERNATIONAL ENERGY INSURANCE

ABC TRANSPORT PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABC TRANSPORT PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

INTERNATIONAL ENERGY

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INTERNATIONAL ENERGY INSURANCE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, INTERNATIONAL ENERGY reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC TRANSPORT and INTERNATIONAL ENERGY

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

The idea behind ABC TRANSPORT PLC and INTERNATIONAL ENERGY INSURANCE 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.