Correlation Between Asia Plus and Asian Insulators

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

By analyzing existing cross correlation between Asia Plus Group and Asian Insulators PCL, you can compare the effects of market volatilities on Asia Plus and Asian Insulators 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 Asia Plus with a short position of Asian Insulators. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Plus and Asian Insulators.

Diversification Opportunities for Asia Plus and Asian Insulators

0.45

Correlation Coefficient

Asia Plus  Asian Insulators

Very weak diversification

The 3 months correlation between Asia and Asian is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Asia Plus Group and Asian Insulators PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Insulators PCL and Asia Plus 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 Asia Plus Group are associated (or correlated) with Asian Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Insulators PCL has no effect on the direction of Asia Plus i.e., Asia Plus and Asian Insulators go up and down completely randomly.

Pair Corralation between Asia Plus and Asian Insulators

Assuming the 90 days trading horizon Asia Plus Group is expected to under-perform the Asian Insulators. But the stock apears to be less risky and, when comparing its historical volatility, Asia Plus Group is 1.07 times less risky than Asian Insulators. The stock trades about -0.32 of its potential returns per unit of risk. The Asian Insulators PCL is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  358.00  in Asian Insulators PCL on October 11, 2024 and sell it today you would earn a total of  2.00  from holding Asian Insulators PCL or generate 0.56% return on investment over 90 days.

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

Asia Plus Group  vs.  Asian Insulators PCL

Asia Plus Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Plus Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Asian Insulators PCL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asian Insulators PCL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Asia Plus and Asian Insulators

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

The idea behind Asia Plus Group and Asian Insulators PCL 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.