Correlation Between Advanced Braking and Vulcan Energy

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

By analyzing existing cross correlation between Advanced Braking Technology and Vulcan Energy Resources, you can compare the effects of market volatilities on Advanced Braking and Vulcan 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 Advanced Braking with a short position of Vulcan Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Braking and Vulcan Energy.

Diversification Opportunities for Advanced Braking and Vulcan Energy

-0.33

Correlation Coefficient

Advanced Braking  Vulcan Energy

Very good diversification

The 3 months correlation between Advanced and Vulcan is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Braking Technology and Vulcan Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Energy Resources and Advanced Braking 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 Advanced Braking Technology are associated (or correlated) with Vulcan Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Energy Resources has no effect on the direction of Advanced Braking i.e., Advanced Braking and Vulcan Energy go up and down completely randomly.

Pair Corralation between Advanced Braking and Vulcan Energy

Assuming the 90 days trading horizon Advanced Braking Technology is expected to generate 0.6 times more return on investment than Vulcan Energy. However, Advanced Braking Technology is 1.66 times less risky than Vulcan Energy. It trades about 0.01 of its potential returns per unit of risk. Vulcan Energy Resources is currently generating about 0.0 per unit of risk. If you would invest  8.00  in Advanced Braking Technology on December 22, 2024 and sell it today you would lose (0.10) from holding Advanced Braking Technology or give up 1.25% of portfolio value over 90 days.

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

Advanced Braking Technology  vs.  Vulcan Energy Resources

Advanced Braking Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Braking Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Advanced Braking is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vulcan Energy Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Energy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Vulcan Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Advanced Braking and Vulcan Energy

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

The idea behind Advanced Braking Technology and Vulcan Energy Resources 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.