Correlation Between Figaro Coffee and STI Education

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

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

Diversification Opportunities for Figaro Coffee and STI Education

0.28

Correlation Coefficient

Figaro Coffee  STI Education

Modest diversification

The 3 months correlation between Figaro and STI is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Figaro Coffee Group and STI Education Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STI Education Systems and Figaro Coffee 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 Figaro Coffee Group are associated (or correlated) with STI Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STI Education Systems has no effect on the direction of Figaro Coffee i.e., Figaro Coffee and STI Education go up and down completely randomly.

Pair Corralation between Figaro Coffee and STI Education

Assuming the 90 days trading horizon Figaro Coffee is expected to generate 3.07 times less return on investment than STI Education. In addition to that, Figaro Coffee is 1.2 times more volatile than STI Education Systems. It trades about 0.04 of its total potential returns per unit of risk. STI Education Systems is currently generating about 0.13 per unit of volatility. If you would invest  30.00  in STI Education Systems on September 14, 2024 and sell it today you would earn a total of  95.00  from holding STI Education Systems or generate 316.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.75%
Values	Daily Returns

Figaro Coffee Group  vs.  STI Education Systems

Figaro Coffee Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Figaro Coffee Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Figaro Coffee may actually be approaching a critical reversion point that can send shares even higher in January 2025.

STI Education Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in STI Education Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, STI Education exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Figaro Coffee and STI Education

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

The idea behind Figaro Coffee Group and STI Education Systems 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.