Correlation Between AUC and SIGNA

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

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

Diversification Opportunities for AUC and SIGNA

1.0

Correlation Coefficient

AUC  SIGNA

No risk reduction

The 3 months correlation between AUC and SIGNA is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding AUC and SIGNA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIGNA and AUC 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 AUC are associated (or correlated) with SIGNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIGNA has no effect on the direction of AUC i.e., AUC and SIGNA go up and down completely randomly.

Pair Corralation between AUC and SIGNA

Assuming the 90 days trading horizon AUC is expected to generate 0.88 times more return on investment than SIGNA. However, AUC is 1.14 times less risky than SIGNA. It trades about 0.32 of its potential returns per unit of risk. SIGNA is currently generating about 0.19 per unit of risk. If you would invest  0.14  in AUC on August 30, 2024 and sell it today you would earn a total of  0.05  from holding AUC or generate 33.1% return on investment over 90 days.

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

AUC  vs.  SIGNA

AUC

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AUC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AUC exhibited solid returns over the last few months and may actually be approaching a breakup point.

SIGNA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIGNA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SIGNA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AUC and SIGNA

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

The idea behind AUC and SIGNA 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.