Correlation Between Action Construction and ITI

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

Diversification Opportunities for Action Construction and ITI

0.61

Correlation Coefficient

Action Construction  ITI

Poor diversification

The 3 months correlation between Action and ITI is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI Limited 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 ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of Action Construction i.e., Action Construction and ITI go up and down completely randomly.

Pair Corralation between Action Construction and ITI

Assuming the 90 days trading horizon Action Construction Equipment is expected to under-perform the ITI. But the stock apears to be less risky and, when comparing its historical volatility, Action Construction Equipment is 2.6 times less risky than ITI. The stock trades about -0.22 of its potential returns per unit of risk. The ITI Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  34,110  in ITI Limited on October 22, 2024 and sell it today you would earn a total of  3,500  from holding ITI Limited or generate 10.26% 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.  ITI Limited

Action Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

ITI Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Action Construction and ITI

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

The idea behind Action Construction Equipment and ITI Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.