Correlation Between American Nortel and Advanced Info

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

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

Diversification Opportunities for American Nortel and Advanced Info

0.38

Correlation Coefficient

American Nortel  Advanced Info

Weak diversification

The 3 months correlation between American and Advanced is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding American Nortel Communications and Advanced Info Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Info Service and American Nortel 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 American Nortel Communications are associated (or correlated) with Advanced Info. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Info Service has no effect on the direction of American Nortel i.e., American Nortel and Advanced Info go up and down completely randomly.

Pair Corralation between American Nortel and Advanced Info

Given the investment horizon of 90 days American Nortel Communications is expected to generate 1.05 times more return on investment than Advanced Info. However, American Nortel is 1.05 times more volatile than Advanced Info Service. It trades about 0.05 of its potential returns per unit of risk. Advanced Info Service is currently generating about 0.03 per unit of risk. If you would invest  2.30  in American Nortel Communications on December 30, 2024 and sell it today you would earn a total of  0.20  from holding American Nortel Communications or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	89.23%
Values	Daily Returns

American Nortel Communications  vs.  Advanced Info Service

American Nortel Comm

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Nortel Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, American Nortel displayed solid returns over the last few months and may actually be approaching a breakup point.

Advanced Info Service

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Info Service are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Advanced Info showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Nortel and Advanced Info

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

The idea behind American Nortel Communications and Advanced Info Service 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.