Correlation Between Associated Alcohols and Global Education

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

By analyzing existing cross correlation between Associated Alcohols Breweries and Global Education Limited, you can compare the effects of market volatilities on Associated Alcohols and Global Education 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 Associated Alcohols with a short position of Global Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated Alcohols and Global Education.

Diversification Opportunities for Associated Alcohols and Global Education

-0.51

Correlation Coefficient

Associated Alcohols  Global Education

Excellent diversification

The 3 months correlation between Associated and Global is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Associated Alcohols Breweries and Global Education Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Education and Associated Alcohols 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 Associated Alcohols Breweries are associated (or correlated) with Global Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Education has no effect on the direction of Associated Alcohols i.e., Associated Alcohols and Global Education go up and down completely randomly.

Pair Corralation between Associated Alcohols and Global Education

Assuming the 90 days trading horizon Associated Alcohols Breweries is expected to generate 2.5 times more return on investment than Global Education. However, Associated Alcohols is 2.5 times more volatile than Global Education Limited. It trades about 0.08 of its potential returns per unit of risk. Global Education Limited is currently generating about -0.27 per unit of risk. If you would invest  107,735  in Associated Alcohols Breweries on November 29, 2024 and sell it today you would earn a total of  8,330  from holding Associated Alcohols Breweries or generate 7.73% return on investment over 90 days.

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

Associated Alcohols Breweries  vs.  Global Education Limited

Associated Alcohols

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Associated Alcohols Breweries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Associated Alcohols reported solid returns over the last few months and may actually be approaching a breakup point.

Global Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Education Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Associated Alcohols and Global Education

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

The idea behind Associated Alcohols Breweries and Global Education Limited 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.