Correlation Between FLOW TRADERS and ELECOM

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

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

Diversification Opportunities for FLOW TRADERS and ELECOM

0.22

Correlation Coefficient

FLOW TRADERS  ELECOM

Modest diversification

The 3 months correlation between FLOW and ELECOM is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding FLOW TRADERS LTD and ELECOM LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECOM LTD and FLOW TRADERS 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 FLOW TRADERS LTD are associated (or correlated) with ELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECOM LTD has no effect on the direction of FLOW TRADERS i.e., FLOW TRADERS and ELECOM go up and down completely randomly.

Pair Corralation between FLOW TRADERS and ELECOM

Assuming the 90 days horizon FLOW TRADERS LTD is expected to generate 1.48 times more return on investment than ELECOM. However, FLOW TRADERS is 1.48 times more volatile than ELECOM LTD. It trades about 0.12 of its potential returns per unit of risk. ELECOM LTD is currently generating about 0.07 per unit of risk. If you would invest  2,124  in FLOW TRADERS LTD on October 25, 2024 and sell it today you would earn a total of  232.00  from holding FLOW TRADERS LTD or generate 10.92% return on investment over 90 days.

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

FLOW TRADERS LTD  vs.  ELECOM LTD

FLOW TRADERS LTD

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLOW TRADERS LTD are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FLOW TRADERS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ELECOM LTD

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ELECOM LTD are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ELECOM is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FLOW TRADERS and ELECOM

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

The idea behind FLOW TRADERS LTD and ELECOM LTD 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.