Correlation Between Allied Electronics and Datatec

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

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

Diversification Opportunities for Allied Electronics and Datatec

-0.15

Correlation Coefficient

Allied Electronics  Datatec

Good diversification

The 3 months correlation between Allied and Datatec is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Datatec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datatec and Allied Electronics 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 Allied Electronics 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 Allied Electronics i.e., Allied Electronics and Datatec go up and down completely randomly.

Pair Corralation between Allied Electronics and Datatec

Assuming the 90 days trading horizon Allied Electronics is expected to under-perform the Datatec. In addition to that, Allied Electronics is 1.05 times more volatile than Datatec. It trades about -0.07 of its total potential returns per unit of risk. Datatec is currently generating about 0.13 per unit of volatility. If you would invest  451,300  in Datatec on December 22, 2024 and sell it today you would earn a total of  63,700  from holding Datatec or generate 14.11% return on investment over 90 days.

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

Allied Electronics  vs.  Datatec

Allied Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allied Electronics 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.

Datatec

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 10 (%) 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 Allied Electronics and Datatec

The main advantage of trading using opposite Allied Electronics and Datatec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Electronics 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 Allied Electronics 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.