Correlation Between Advtech and Datatec

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

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

Diversification Opportunities for Advtech and Datatec

0.75

Correlation Coefficient

Advtech  Datatec

Poor diversification

The 3 months correlation between Advtech and Datatec is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Advtech and Datatec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datatec and Advtech 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 Advtech are associated (or correlated) with Datatec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datatec has no effect on the direction of Advtech i.e., Advtech and Datatec go up and down completely randomly.

Pair Corralation between Advtech and Datatec

Assuming the 90 days trading horizon Advtech is expected to generate 0.9 times more return on investment than Datatec. However, Advtech is 1.11 times less risky than Datatec. It trades about 0.09 of its potential returns per unit of risk. Datatec is currently generating about 0.05 per unit of risk. If you would invest  246,800  in Advtech on September 12, 2024 and sell it today you would earn a total of  85,800  from holding Advtech or generate 34.76% return on investment over 90 days.

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

Advtech  vs.  Datatec

Advtech

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advtech are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Advtech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Datatec

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Datatec exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advtech and Datatec

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

The idea behind Advtech and Datatec 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.