Correlation Between Sao Ta and Elcom Technology

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

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

Diversification Opportunities for Sao Ta and Elcom Technology

0.26

Correlation Coefficient

Sao Ta  Elcom Technology

Modest diversification

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

Pair Corralation between Sao Ta and Elcom Technology

Assuming the 90 days trading horizon Sao Ta is expected to generate 2.57 times less return on investment than Elcom Technology. But when comparing it to its historical volatility, Sao Ta Foods is 1.84 times less risky than Elcom Technology. It trades about 0.06 of its potential returns per unit of risk. Elcom Technology Communications is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,080,000  in Elcom Technology Communications on September 26, 2024 and sell it today you would earn a total of  1,710,000  from holding Elcom Technology Communications or generate 158.33% return on investment over 90 days.

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

Sao Ta Foods  vs.  Elcom Technology Communication

Sao Ta Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sao Ta Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Sao Ta is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Elcom Technology Com

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elcom Technology Communications are ranked lower than 11 (%) 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.

Pair Trading with Sao Ta and Elcom Technology

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

The idea behind Sao Ta Foods and Elcom Technology Communications 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.