Correlation Between Advtech and Firstrand

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

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

Diversification Opportunities for Advtech and Firstrand

0.47

Correlation Coefficient

Advtech  Firstrand

Very weak diversification

The 3 months correlation between Advtech and Firstrand is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Advtech and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand 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 Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Advtech i.e., Advtech and Firstrand go up and down completely randomly.

Pair Corralation between Advtech and Firstrand

Assuming the 90 days trading horizon Advtech is expected to generate 1.22 times more return on investment than Firstrand. However, Advtech is 1.22 times more volatile than Firstrand. It trades about -0.03 of its potential returns per unit of risk. Firstrand is currently generating about -0.11 per unit of risk. If you would invest  328,400  in Advtech on December 4, 2024 and sell it today you would lose (10,900) from holding Advtech or give up 3.32% of portfolio value over 90 days.

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

Advtech  vs.  Firstrand

Advtech

Risk-Adjusted Performance

Very Weak

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

Firstrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Advtech and Firstrand

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

The idea behind Advtech and Firstrand 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.