Correlation Between Huge and Allied Electronics

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

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

Diversification Opportunities for Huge and Allied Electronics

0.23

Correlation Coefficient

Huge  Allied Electronics

Modest diversification

The 3 months correlation between Huge and Allied is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Huge Group and Allied Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Electronics and Huge 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 Huge Group are associated (or correlated) with Allied Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Electronics has no effect on the direction of Huge i.e., Huge and Allied Electronics go up and down completely randomly.

Pair Corralation between Huge and Allied Electronics

Assuming the 90 days trading horizon Huge is expected to generate 2.51 times less return on investment than Allied Electronics. But when comparing it to its historical volatility, Huge Group is 1.55 times less risky than Allied Electronics. It trades about 0.24 of its potential returns per unit of risk. Allied Electronics is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  206,700  in Allied Electronics on October 9, 2024 and sell it today you would earn a total of  24,000  from holding Allied Electronics or generate 11.61% return on investment over 90 days.

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

Huge Group  vs.  Allied Electronics

Huge Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huge Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Huge is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Allied Electronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huge and Allied Electronics

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

The idea behind Huge Group and Allied Electronics 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.