Correlation Between AFP Habitat and Salfacorp

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

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

Diversification Opportunities for AFP Habitat and Salfacorp

-0.46

Correlation Coefficient

AFP Habitat  Salfacorp

Very good diversification

The 3 months correlation between AFP and Salfacorp is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding AFP Habitat and Salfacorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salfacorp and AFP Habitat 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 AFP Habitat are associated (or correlated) with Salfacorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salfacorp has no effect on the direction of AFP Habitat i.e., AFP Habitat and Salfacorp go up and down completely randomly.

Pair Corralation between AFP Habitat and Salfacorp

Assuming the 90 days trading horizon AFP Habitat is expected to generate 1.1 times less return on investment than Salfacorp. But when comparing it to its historical volatility, AFP Habitat is 1.24 times less risky than Salfacorp. It trades about 0.11 of its potential returns per unit of risk. Salfacorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  41,690  in Salfacorp on September 4, 2024 and sell it today you would earn a total of  13,956  from holding Salfacorp or generate 33.48% return on investment over 90 days.

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

AFP Habitat  vs.  Salfacorp

AFP Habitat

Risk-Adjusted Performance

0 of 100

Very Weak

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

Salfacorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Salfacorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Salfacorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with AFP Habitat and Salfacorp

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

The idea behind AFP Habitat and Salfacorp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.