Correlation Between Agro Tech and Generic Engineering

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

Diversification Opportunities for Agro Tech and Generic Engineering

0.75

Correlation Coefficient

Agro Tech  Generic Engineering

Poor diversification

The 3 months correlation between Agro and Generic is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and Generic Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generic Engineering 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 Generic Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generic Engineering has no effect on the direction of Agro Tech i.e., Agro Tech and Generic Engineering go up and down completely randomly.

Pair Corralation between Agro Tech and Generic Engineering

Assuming the 90 days trading horizon Agro Tech Foods is expected to generate 0.43 times more return on investment than Generic Engineering. However, Agro Tech Foods is 2.33 times less risky than Generic Engineering. It trades about -0.09 of its potential returns per unit of risk. Generic Engineering Construction is currently generating about -0.12 per unit of risk. If you would invest  89,945  in Agro Tech Foods on December 24, 2024 and sell it today you would lose (9,510) from holding Agro Tech Foods or give up 10.57% of portfolio value over 90 days.

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

Agro Tech Foods  vs.  Generic Engineering Constructi

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.

Generic Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Generic Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Agro Tech and Generic Engineering

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

The idea behind Agro Tech Foods and Generic Engineering Construction 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.