Correlation Between Basic Materials and GX AI

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

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

Diversification Opportunities for Basic Materials and GX AI

0.38

Correlation Coefficient

Basic Materials  GX AI

Weak diversification

The 3 months correlation between Basic and BAIQ39 is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and GX AI TECH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GX AI TECH and Basic Materials 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 Basic Materials are associated (or correlated) with GX AI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GX AI TECH has no effect on the direction of Basic Materials i.e., Basic Materials and GX AI go up and down completely randomly.

Pair Corralation between Basic Materials and GX AI

Assuming the 90 days trading horizon Basic Materials is expected to generate 420.63 times less return on investment than GX AI. In addition to that, Basic Materials is 1.0 times more volatile than GX AI TECH. It trades about 0.0 of its total potential returns per unit of risk. GX AI TECH is currently generating about 0.27 per unit of volatility. If you would invest  6,678  in GX AI TECH on September 25, 2024 and sell it today you would earn a total of  1,482  from holding GX AI TECH or generate 22.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Basic Materials  vs.  GX AI TECH

Pair Trading with Basic Materials and GX AI

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

The idea behind Basic Materials and GX AI TECH 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.