Correlation Between Plastic Omnium and X-FAB Silicon

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

By analyzing existing cross correlation between Plastic Omnium and X FAB Silicon Foundries, you can compare the effects of market volatilities on Plastic Omnium and X-FAB Silicon 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 Plastic Omnium with a short position of X-FAB Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plastic Omnium and X-FAB Silicon.

Diversification Opportunities for Plastic Omnium and X-FAB Silicon

0.26

Correlation Coefficient

Plastic Omnium  X-FAB Silicon

Modest diversification

The 3 months correlation between Plastic and X-FAB is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Plastic Omnium and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Plastic Omnium 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 Plastic Omnium are associated (or correlated) with X-FAB Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Plastic Omnium i.e., Plastic Omnium and X-FAB Silicon go up and down completely randomly.

Pair Corralation between Plastic Omnium and X-FAB Silicon

Assuming the 90 days trading horizon Plastic Omnium is expected to generate 0.88 times more return on investment than X-FAB Silicon. However, Plastic Omnium is 1.14 times less risky than X-FAB Silicon. It trades about -0.01 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.05 per unit of risk. If you would invest  1,184  in Plastic Omnium on October 9, 2024 and sell it today you would lose (125.00) from holding Plastic Omnium or give up 10.56% of portfolio value over 90 days.

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

Plastic Omnium  vs.  X FAB Silicon Foundries

Plastic Omnium

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Plastic Omnium unveiled solid returns over the last few months and may actually be approaching a breakup point.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, X-FAB Silicon is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Plastic Omnium and X-FAB Silicon

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

The idea behind Plastic Omnium and X FAB Silicon Foundries 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .