Correlation Between ITALIAN WINE and CHAMPION IRON

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

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

Diversification Opportunities for ITALIAN WINE and CHAMPION IRON

0.25

Correlation Coefficient

ITALIAN WINE  CHAMPION IRON

Modest diversification

The 3 months correlation between ITALIAN and CHAMPION is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ITALIAN WINE BRANDS and CHAMPION IRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAMPION IRON and ITALIAN WINE 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 ITALIAN WINE BRANDS are associated (or correlated) with CHAMPION IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAMPION IRON has no effect on the direction of ITALIAN WINE i.e., ITALIAN WINE and CHAMPION IRON go up and down completely randomly.

Pair Corralation between ITALIAN WINE and CHAMPION IRON

Assuming the 90 days horizon ITALIAN WINE BRANDS is expected to under-perform the CHAMPION IRON. In addition to that, ITALIAN WINE is 1.07 times more volatile than CHAMPION IRON. It trades about -0.05 of its total potential returns per unit of risk. CHAMPION IRON is currently generating about -0.04 per unit of volatility. If you would invest  346.00  in CHAMPION IRON on December 21, 2024 and sell it today you would lose (28.00) from holding CHAMPION IRON or give up 8.09% of portfolio value over 90 days.

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

ITALIAN WINE BRANDS  vs.  CHAMPION IRON

ITALIAN WINE BRANDS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITALIAN WINE BRANDS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CHAMPION IRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHAMPION IRON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ITALIAN WINE and CHAMPION IRON

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

The idea behind ITALIAN WINE BRANDS and CHAMPION IRON 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.