Correlation Between ABC TRANSPORT and UNION HOMES

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

Diversification Opportunities for ABC TRANSPORT and UNION HOMES

0.89

Correlation Coefficient

ABC TRANSPORT  UNION HOMES

Very poor diversification

The 3 months correlation between ABC and UNION is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ABC TRANSPORT PLC and UNION HOMES REAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNION HOMES REAL 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 UNION HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNION HOMES REAL has no effect on the direction of ABC TRANSPORT i.e., ABC TRANSPORT and UNION HOMES go up and down completely randomly.

Pair Corralation between ABC TRANSPORT and UNION HOMES

Assuming the 90 days trading horizon ABC TRANSPORT is expected to generate 1.83 times less return on investment than UNION HOMES. In addition to that, ABC TRANSPORT is 1.29 times more volatile than UNION HOMES REAL. It trades about 0.12 of its total potential returns per unit of risk. UNION HOMES REAL is currently generating about 0.29 per unit of volatility. If you would invest  3,660  in UNION HOMES REAL on December 26, 2024 and sell it today you would earn a total of  2,030  from holding UNION HOMES REAL or generate 55.46% return on investment over 90 days.

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

ABC TRANSPORT PLC  vs.  UNION HOMES REAL

ABC TRANSPORT PLC

Risk-Adjusted Performance

OK

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

UNION HOMES REAL

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in UNION HOMES REAL are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, UNION HOMES demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC TRANSPORT and UNION HOMES

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

The idea behind ABC TRANSPORT PLC and UNION HOMES REAL 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.