Correlation Between Associated British and Advanced Medical

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

By analyzing existing cross correlation between Associated British Foods and Advanced Medical Solutions, you can compare the effects of market volatilities on Associated British and Advanced Medical 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 British with a short position of Advanced Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Advanced Medical.

Diversification Opportunities for Associated British and Advanced Medical

-0.25

Correlation Coefficient

Associated British  Advanced Medical

Very good diversification

The 3 months correlation between Associated and Advanced is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Advanced Medical Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Medical Sol and Associated British 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 British Foods are associated (or correlated) with Advanced Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Medical Sol has no effect on the direction of Associated British i.e., Associated British and Advanced Medical go up and down completely randomly.

Pair Corralation between Associated British and Advanced Medical

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Advanced Medical. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 2.41 times less risky than Advanced Medical. The stock trades about -0.04 of its potential returns per unit of risk. The Advanced Medical Solutions is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  19,700  in Advanced Medical Solutions on December 30, 2024 and sell it today you would earn a total of  4,000  from holding Advanced Medical Solutions or generate 20.3% return on investment over 90 days.

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

Associated British Foods  vs.  Advanced Medical Solutions

Associated British Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Advanced Medical Sol

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Medical Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Advanced Medical exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated British and Advanced Medical

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

The idea behind Associated British Foods and Advanced Medical Solutions 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.