Correlation Between Porvair Plc and Park Electrochemical

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

By analyzing existing cross correlation between Porvair plc and Park Electrochemical, you can compare the effects of market volatilities on Porvair Plc and Park Electrochemical 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 Porvair Plc with a short position of Park Electrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Porvair Plc and Park Electrochemical.

Diversification Opportunities for Porvair Plc and Park Electrochemical

0.66

Correlation Coefficient

Porvair Plc  Park Electrochemical

Poor diversification

The 3 months correlation between Porvair and Park is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Porvair plc and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical and Porvair Plc 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 Porvair plc are associated (or correlated) with Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Porvair Plc i.e., Porvair Plc and Park Electrochemical go up and down completely randomly.

Pair Corralation between Porvair Plc and Park Electrochemical

Assuming the 90 days horizon Porvair plc is expected to generate 0.45 times more return on investment than Park Electrochemical. However, Porvair plc is 2.2 times less risky than Park Electrochemical. It trades about 0.27 of its potential returns per unit of risk. Park Electrochemical is currently generating about -0.18 per unit of risk. If you would invest  881.00  in Porvair plc on September 22, 2024 and sell it today you would earn a total of  39.00  from holding Porvair plc or generate 4.43% return on investment over 90 days.

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

Porvair plc  vs.  Park Electrochemical

Porvair plc

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Porvair plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Porvair Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Park Electrochemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Porvair Plc and Park Electrochemical

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

The idea behind Porvair plc and Park Electrochemical 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..