Correlation Between Arad and Airport City

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

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

Diversification Opportunities for Arad and Airport City

0.69

Correlation Coefficient

Arad  Airport City

Poor diversification

The 3 months correlation between Arad and Airport is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Arad and Airport City in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airport City and Arad 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 Arad are associated (or correlated) with Airport City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airport City has no effect on the direction of Arad i.e., Arad and Airport City go up and down completely randomly.

Pair Corralation between Arad and Airport City

Assuming the 90 days trading horizon Arad is expected to generate 3.93 times less return on investment than Airport City. But when comparing it to its historical volatility, Arad is 1.13 times less risky than Airport City. It trades about 0.04 of its potential returns per unit of risk. Airport City is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  545,400  in Airport City on September 3, 2024 and sell it today you would earn a total of  58,600  from holding Airport City or generate 10.74% return on investment over 90 days.

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

Arad  vs.  Airport City

Arad

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Arad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Airport City

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Airport City are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Airport City sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arad and Airport City

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

The idea behind Arad and Airport City 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.