Correlation Between Acuity Brands and Asia Pacific

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

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

Diversification Opportunities for Acuity Brands and Asia Pacific

0.05

Correlation Coefficient

Acuity Brands  Asia Pacific

Significant diversification

The 3 months correlation between Acuity and Asia is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Acuity Brands and Asia Pacific Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Pacific Wire and Acuity Brands 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 Acuity Brands are associated (or correlated) with Asia Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Pacific Wire has no effect on the direction of Acuity Brands i.e., Acuity Brands and Asia Pacific go up and down completely randomly.

Pair Corralation between Acuity Brands and Asia Pacific

Considering the 90-day investment horizon Acuity Brands is expected to under-perform the Asia Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Acuity Brands is 2.13 times less risky than Asia Pacific. The stock trades about -0.07 of its potential returns per unit of risk. The Asia Pacific Wire is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  139.00  in Asia Pacific Wire on December 28, 2024 and sell it today you would earn a total of  15.00  from holding Asia Pacific Wire or generate 10.79% return on investment over 90 days.

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

Acuity Brands  vs.  Asia Pacific Wire

Acuity Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Acuity Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Asia Pacific Wire

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Pacific Wire are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Asia Pacific exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Acuity Brands and Asia Pacific

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

The idea behind Acuity Brands and Asia Pacific Wire 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.