Correlation Between Agro Tech and GACM Technologies

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

Diversification Opportunities for Agro Tech and GACM Technologies

0.53

Correlation Coefficient

Agro Tech  GACM Technologies

Very weak diversification

The 3 months correlation between Agro and GACM is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and GACM Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GACM Technologies 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 GACM Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GACM Technologies has no effect on the direction of Agro Tech i.e., Agro Tech and GACM Technologies go up and down completely randomly.

Pair Corralation between Agro Tech and GACM Technologies

Assuming the 90 days trading horizon Agro Tech Foods is expected to under-perform the GACM Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Agro Tech Foods is 1.05 times less risky than GACM Technologies. The stock trades about -0.09 of its potential returns per unit of risk. The GACM Technologies Limited is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  94.00  in GACM Technologies Limited on December 24, 2024 and sell it today you would lose (9.00) from holding GACM Technologies Limited or give up 9.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Agro Tech Foods  vs.  GACM Technologies 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.

GACM Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days GACM Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Agro Tech and GACM Technologies

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

The idea behind Agro Tech Foods and GACM Technologies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.