Correlation Between SCOTT TECHNOLOGY and Gear Energy

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

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

Diversification Opportunities for SCOTT TECHNOLOGY and Gear Energy

-0.42

Correlation Coefficient

SCOTT TECHNOLOGY  Gear Energy

Very good diversification

The 3 months correlation between SCOTT and Gear is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding SCOTT TECHNOLOGY and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and SCOTT TECHNOLOGY 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 SCOTT TECHNOLOGY are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of SCOTT TECHNOLOGY i.e., SCOTT TECHNOLOGY and Gear Energy go up and down completely randomly.

Pair Corralation between SCOTT TECHNOLOGY and Gear Energy

Assuming the 90 days trading horizon SCOTT TECHNOLOGY is expected to generate 0.55 times more return on investment than Gear Energy. However, SCOTT TECHNOLOGY is 1.83 times less risky than Gear Energy. It trades about -0.21 of its potential returns per unit of risk. Gear Energy is currently generating about -0.15 per unit of risk. If you would invest  131.00  in SCOTT TECHNOLOGY on October 1, 2024 and sell it today you would lose (11.00) from holding SCOTT TECHNOLOGY or give up 8.4% of portfolio value over 90 days.

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

SCOTT TECHNOLOGY  vs.  Gear Energy

SCOTT TECHNOLOGY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SCOTT TECHNOLOGY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, SCOTT TECHNOLOGY may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 SCOTT TECHNOLOGY and Gear Energy

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

The idea behind SCOTT TECHNOLOGY and Gear Energy 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.