Correlation Between Demco Public and Asia Aviation

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

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

Diversification Opportunities for Demco Public and Asia Aviation

0.8

Correlation Coefficient

Demco Public  Asia Aviation

Very poor diversification

The 3 months correlation between Demco and Asia is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Demco Public and Asia Aviation Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Aviation Public and Demco Public 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 Demco Public are associated (or correlated) with Asia Aviation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Aviation Public has no effect on the direction of Demco Public i.e., Demco Public and Asia Aviation go up and down completely randomly.

Pair Corralation between Demco Public and Asia Aviation

Assuming the 90 days trading horizon Demco Public is expected to generate 1.04 times less return on investment than Asia Aviation. But when comparing it to its historical volatility, Demco Public is 1.01 times less risky than Asia Aviation. It trades about 0.11 of its potential returns per unit of risk. Asia Aviation Public is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Asia Aviation Public on August 31, 2024 and sell it today you would earn a total of  42.00  from holding Asia Aviation Public or generate 17.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Demco Public  vs.  Asia Aviation Public

Demco Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Demco Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Demco Public sustained solid returns over the last few months and may actually be approaching a breakup point.

Asia Aviation Public

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Aviation Public are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Asia Aviation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Demco Public and Asia Aviation

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

The idea behind Demco Public and Asia Aviation Public 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.