Correlation Between AMS Small and Eurocommercial Properties

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

By analyzing existing cross correlation between AMS Small Cap and Eurocommercial Properties NV, you can compare the effects of market volatilities on AMS Small and Eurocommercial Properties 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 AMS Small with a short position of Eurocommercial Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Eurocommercial Properties.

Diversification Opportunities for AMS Small and Eurocommercial Properties

0.11

Correlation Coefficient

AMS Small  Eurocommercial Properties

Average diversification

The 3 months correlation between AMS and Eurocommercial is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Eurocommercial Properties NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eurocommercial Properties and AMS Small 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 AMS Small Cap are associated (or correlated) with Eurocommercial Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eurocommercial Properties has no effect on the direction of AMS Small i.e., AMS Small and Eurocommercial Properties go up and down completely randomly.

Pair Corralation between AMS Small and Eurocommercial Properties

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 1.17 times more return on investment than Eurocommercial Properties. However, AMS Small is 1.17 times more volatile than Eurocommercial Properties NV. It trades about 0.13 of its potential returns per unit of risk. Eurocommercial Properties NV is currently generating about -0.08 per unit of risk. If you would invest  125,105  in AMS Small Cap on October 11, 2024 and sell it today you would earn a total of  3,163  from holding AMS Small Cap or generate 2.53% return on investment over 90 days.

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

AMS Small Cap  vs.  Eurocommercial Properties NV

Pair Trading with AMS Small and Eurocommercial Properties

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

The idea behind AMS Small Cap and Eurocommercial Properties NV 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.