Correlation Between Elcom Technology and Saigon Machinery

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

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

Diversification Opportunities for Elcom Technology and Saigon Machinery

0.66

Correlation Coefficient

Elcom Technology  Saigon Machinery

Poor diversification

The 3 months correlation between Elcom and Saigon is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Elcom Technology Communication and Saigon Machinery Spare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saigon Machinery Spare and Elcom Technology 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 Elcom Technology Communications are associated (or correlated) with Saigon Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saigon Machinery Spare has no effect on the direction of Elcom Technology i.e., Elcom Technology and Saigon Machinery go up and down completely randomly.

Pair Corralation between Elcom Technology and Saigon Machinery

Assuming the 90 days trading horizon Elcom Technology is expected to generate 3.48 times less return on investment than Saigon Machinery. But when comparing it to its historical volatility, Elcom Technology Communications is 1.89 times less risky than Saigon Machinery. It trades about 0.37 of its potential returns per unit of risk. Saigon Machinery Spare is currently generating about 0.68 of returns per unit of risk over similar time horizon. If you would invest  1,015,000  in Saigon Machinery Spare on September 24, 2024 and sell it today you would earn a total of  125,000  from holding Saigon Machinery Spare or generate 12.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	31.82%
Values	Daily Returns

Elcom Technology Communication  vs.  Saigon Machinery Spare

Elcom Technology Com

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elcom Technology Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Elcom Technology displayed solid returns over the last few months and may actually be approaching a breakup point.

Saigon Machinery Spare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Saigon Machinery Spare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Saigon Machinery displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elcom Technology and Saigon Machinery

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

The idea behind Elcom Technology Communications and Saigon Machinery Spare 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.