Correlation Between Agro Tech and 20 Microns

Can any of the company-specific risk be diversified away by investing in both Agro Tech and 20 Microns 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 Agro Tech and 20 Microns into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Agro Tech Foods and 20 Microns Limited, you can compare the effects of market volatilities on Agro Tech and 20 Microns 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 Agro Tech with a short position of 20 Microns. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and 20 Microns.

Diversification Opportunities for Agro Tech and 20 Microns

0.91

Correlation Coefficient

Agro Tech  20 Microns

Almost no diversification

The 3 months correlation between Agro and 20MICRONS is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and 20 Microns Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 20 Microns Limited and Agro Tech 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 Agro Tech Foods are associated (or correlated) with 20 Microns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 20 Microns Limited has no effect on the direction of Agro Tech i.e., Agro Tech and 20 Microns go up and down completely randomly.

Pair Corralation between Agro Tech and 20 Microns

Assuming the 90 days trading horizon Agro Tech Foods is expected to under-perform the 20 Microns. But the stock apears to be less risky and, when comparing its historical volatility, Agro Tech Foods is 1.92 times less risky than 20 Microns. The stock trades about -0.1 of its potential returns per unit of risk. The 20 Microns Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  22,796  in 20 Microns Limited on December 26, 2024 and sell it today you would lose (2,570) from holding 20 Microns Limited or give up 11.27% of portfolio value over 90 days.

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

Agro Tech Foods  vs.  20 Microns Limited

Agro Tech Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agro Tech Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

20 Microns Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days 20 Microns Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Agro Tech and 20 Microns

The main advantage of trading using opposite Agro Tech and 20 Microns positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agro Tech position performs unexpectedly, 20 Microns 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 20 Microns will offset losses from the drop in 20 Microns' long position.

The idea behind Agro Tech Foods and 20 Microns 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.