Correlation Between First Tractor and Austin Engineering

Can any of the company-specific risk be diversified away by investing in both First Tractor and Austin Engineering 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 First Tractor and Austin Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Tractor and Austin Engineering Limited, you can compare the effects of market volatilities on First Tractor and Austin Engineering 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 First Tractor with a short position of Austin Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Tractor and Austin Engineering.

Diversification Opportunities for First Tractor and Austin Engineering

-0.95

Correlation Coefficient

First Tractor  Austin Engineering

Pay attention - limited upside

The 3 months correlation between First and Austin is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Tractor and Austin Engineering Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Austin Engineering and First Tractor 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 First Tractor are associated (or correlated) with Austin Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Austin Engineering has no effect on the direction of First Tractor i.e., First Tractor and Austin Engineering go up and down completely randomly.

Pair Corralation between First Tractor and Austin Engineering

Assuming the 90 days horizon First Tractor is expected to generate 0.71 times more return on investment than Austin Engineering. However, First Tractor is 1.42 times less risky than Austin Engineering. It trades about 0.13 of its potential returns per unit of risk. Austin Engineering Limited is currently generating about -0.11 per unit of risk. If you would invest  63.00  in First Tractor on December 29, 2024 and sell it today you would earn a total of  18.00  from holding First Tractor or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

First Tractor  vs.  Austin Engineering Limited

First Tractor

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Tractor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, First Tractor reported solid returns over the last few months and may actually be approaching a breakup point.

Austin Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Austin Engineering Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First Tractor and Austin Engineering

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

The idea behind First Tractor and Austin Engineering Limited 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.