Correlation Between First Tractor and American Premium

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

By analyzing existing cross correlation between First Tractor and American Premium Water, you can compare the effects of market volatilities on First Tractor and American Premium 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 American Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Tractor and American Premium.

Diversification Opportunities for First Tractor and American Premium

-0.27

Correlation Coefficient

First Tractor  American Premium

Very good diversification

The 3 months correlation between First and American is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding First Tractor and American Premium Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Premium Water 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 American Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Premium Water has no effect on the direction of First Tractor i.e., First Tractor and American Premium go up and down completely randomly.

Pair Corralation between First Tractor and American Premium

Assuming the 90 days horizon First Tractor is expected to generate 34.94 times less return on investment than American Premium. But when comparing it to its historical volatility, First Tractor is 37.11 times less risky than American Premium. It trades about 0.13 of its potential returns per unit of risk. American Premium Water is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.00  in American Premium Water on December 29, 2024 and sell it today you would earn a total of  0.00  from holding American Premium Water or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.16%
Values	Daily Returns

First Tractor  vs.  American Premium Water

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.

American Premium Water

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Premium Water are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, American Premium demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Tractor and American Premium

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

The idea behind First Tractor and American Premium Water 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.