Correlation Between Agro Tech and Action Construction

Can any of the company-specific risk be diversified away by investing in both Agro Tech and Action Construction 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 Action Construction 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 Action Construction Equipment, you can compare the effects of market volatilities on Agro Tech and Action Construction 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 Action Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and Action Construction.

Diversification Opportunities for Agro Tech and Action Construction

-0.13

Correlation Coefficient

Agro Tech  Action Construction

Good diversification

The 3 months correlation between Agro and Action is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and Action Construction Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action Construction 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 Action Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Construction has no effect on the direction of Agro Tech i.e., Agro Tech and Action Construction go up and down completely randomly.

Pair Corralation between Agro Tech and Action Construction

Assuming the 90 days trading horizon Agro Tech Foods is expected to generate 1.18 times more return on investment than Action Construction. However, Agro Tech is 1.18 times more volatile than Action Construction Equipment. It trades about 0.07 of its potential returns per unit of risk. Action Construction Equipment is currently generating about 0.02 per unit of risk. If you would invest  73,592  in Agro Tech Foods on September 27, 2024 and sell it today you would earn a total of  16,353  from holding Agro Tech Foods or generate 22.22% return on investment over 90 days.

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

Agro Tech Foods  vs.  Action Construction Equipment

Agro Tech Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Tech Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Agro Tech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Action Construction is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Agro Tech and Action Construction

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

The idea behind Agro Tech Foods and Action Construction Equipment 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.