Correlation Between Pan Asia and General Engineering

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

By analyzing existing cross correlation between Pan Asia Footwear and General Engineering Public, you can compare the effects of market volatilities on Pan Asia and General Engineering 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 Pan Asia with a short position of General Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pan Asia and General Engineering.

Diversification Opportunities for Pan Asia and General Engineering

0.8

Correlation Coefficient

Pan Asia  General Engineering

Very poor diversification

The 3 months correlation between Pan and General is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Footwear and General Engineering Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Engineering and Pan Asia 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 Pan Asia Footwear are associated (or correlated) with General Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Engineering has no effect on the direction of Pan Asia i.e., Pan Asia and General Engineering go up and down completely randomly.

Pair Corralation between Pan Asia and General Engineering

Assuming the 90 days trading horizon Pan Asia Footwear is expected to under-perform the General Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Pan Asia Footwear is 2.92 times less risky than General Engineering. The stock trades about -0.08 of its potential returns per unit of risk. The General Engineering Public is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  9.00  in General Engineering Public on October 5, 2024 and sell it today you would lose (1.00) from holding General Engineering Public or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Pan Asia Footwear  vs.  General Engineering Public

Pan Asia Footwear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan Asia Footwear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

General Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Engineering Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Pan Asia and General Engineering

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

The idea behind Pan Asia Footwear and General Engineering Public 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.