Correlation Between APAC Resources and Armada Mercantile

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

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

Diversification Opportunities for APAC Resources and Armada Mercantile

-0.66

Correlation Coefficient

APAC Resources  Armada Mercantile

Excellent diversification

The 3 months correlation between APAC and Armada is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding APAC Resources Limited and Armada Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armada Mercantile and APAC Resources 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 APAC Resources Limited are associated (or correlated) with Armada Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armada Mercantile has no effect on the direction of APAC Resources i.e., APAC Resources and Armada Mercantile go up and down completely randomly.

Pair Corralation between APAC Resources and Armada Mercantile

Assuming the 90 days horizon APAC Resources Limited is expected to generate 0.31 times more return on investment than Armada Mercantile. However, APAC Resources Limited is 3.19 times less risky than Armada Mercantile. It trades about 0.13 of its potential returns per unit of risk. Armada Mercantile is currently generating about -0.05 per unit of risk. If you would invest  10.00  in APAC Resources Limited on September 4, 2024 and sell it today you would earn a total of  1.00  from holding APAC Resources Limited or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	87.5%
Values	Daily Returns

APAC Resources Limited  vs.  Armada Mercantile

APAC Resources

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days APAC Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly conflicting fundamental indicators, APAC Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Armada Mercantile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Mercantile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with APAC Resources and Armada Mercantile

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

The idea behind APAC Resources Limited and Armada Mercantile 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.