Correlation Between Action Construction and Blue Coast

Can any of the company-specific risk be diversified away by investing in both Action Construction and Blue Coast 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 Action Construction and Blue Coast into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Action Construction Equipment and Blue Coast Hotels, you can compare the effects of market volatilities on Action Construction and Blue Coast 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 Action Construction with a short position of Blue Coast. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and Blue Coast.

Diversification Opportunities for Action Construction and Blue Coast

0.63

Correlation Coefficient

Action Construction  Blue Coast

Poor diversification

The 3 months correlation between Action and Blue is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and Blue Coast Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Coast Hotels and Action Construction 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 Action Construction Equipment are associated (or correlated) with Blue Coast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Coast Hotels has no effect on the direction of Action Construction i.e., Action Construction and Blue Coast go up and down completely randomly.

Pair Corralation between Action Construction and Blue Coast

Assuming the 90 days trading horizon Action Construction is expected to generate 61.04 times less return on investment than Blue Coast. But when comparing it to its historical volatility, Action Construction Equipment is 1.46 times less risky than Blue Coast. It trades about 0.02 of its potential returns per unit of risk. Blue Coast Hotels is currently generating about 0.9 of returns per unit of risk over similar time horizon. If you would invest  1,016  in Blue Coast Hotels on October 11, 2024 and sell it today you would earn a total of  1,126  from holding Blue Coast Hotels or generate 110.83% return on investment over 90 days.

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

Action Construction Equipment  vs.  Blue Coast Hotels

Action Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Action Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Blue Coast Hotels

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Action Construction and Blue Coast

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

The idea behind Action Construction Equipment and Blue Coast Hotels 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.