Correlation Between Solid State and Aeorema Communications

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

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

Diversification Opportunities for Solid State and Aeorema Communications

-0.6

Correlation Coefficient

Solid State  Aeorema Communications

Excellent diversification

The 3 months correlation between Solid and Aeorema is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Solid State Plc and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications and Solid State 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 Solid State Plc are associated (or correlated) with Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Solid State i.e., Solid State and Aeorema Communications go up and down completely randomly.

Pair Corralation between Solid State and Aeorema Communications

Assuming the 90 days trading horizon Solid State Plc is expected to generate 1.42 times more return on investment than Aeorema Communications. However, Solid State is 1.42 times more volatile than Aeorema Communications Plc. It trades about 0.46 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about -0.51 per unit of risk. If you would invest  12,750  in Solid State Plc on October 22, 2024 and sell it today you would earn a total of  3,250  from holding Solid State Plc or generate 25.49% return on investment over 90 days.

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

Solid State Plc  vs.  Aeorema Communications Plc

Solid State Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solid State Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Aeorema Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Solid State and Aeorema Communications

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

The idea behind Solid State Plc and Aeorema Communications Plc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.