Correlation Between SEIKO EPSON and XAAR PLC

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

By analyzing existing cross correlation between SEIKO EPSON PADR and XAAR PLC LS 10, you can compare the effects of market volatilities on SEIKO EPSON and XAAR PLC 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 SEIKO EPSON with a short position of XAAR PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of SEIKO EPSON and XAAR PLC.

Diversification Opportunities for SEIKO EPSON and XAAR PLC

-0.16

Correlation Coefficient

SEIKO EPSON  XAAR PLC

Good diversification

The 3 months correlation between SEIKO and XAAR is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SEIKO EPSON PADR and XAAR PLC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XAAR PLC LS and SEIKO EPSON 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 SEIKO EPSON PADR are associated (or correlated) with XAAR PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XAAR PLC LS has no effect on the direction of SEIKO EPSON i.e., SEIKO EPSON and XAAR PLC go up and down completely randomly.

Pair Corralation between SEIKO EPSON and XAAR PLC

Assuming the 90 days trading horizon SEIKO EPSON PADR is expected to generate 0.58 times more return on investment than XAAR PLC. However, SEIKO EPSON PADR is 1.72 times less risky than XAAR PLC. It trades about -0.03 of its potential returns per unit of risk. XAAR PLC LS 10 is currently generating about -0.12 per unit of risk. If you would invest  825.00  in SEIKO EPSON PADR on October 15, 2024 and sell it today you would lose (40.00) from holding SEIKO EPSON PADR or give up 4.85% of portfolio value over 90 days.

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

SEIKO EPSON PADR  vs.  XAAR PLC LS 10

SEIKO EPSON PADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEIKO EPSON PADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SEIKO EPSON is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

XAAR PLC LS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XAAR PLC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SEIKO EPSON and XAAR PLC

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

The idea behind SEIKO EPSON PADR and XAAR PLC LS 10 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.