Correlation Between ATT and Defence Therapeutics

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

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

Diversification Opportunities for ATT and Defence Therapeutics

0.76

Correlation Coefficient

ATT  Defence Therapeutics

Poor diversification

The 3 months correlation between ATT and Defence is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics and ATT 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 ATT Inc are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of ATT i.e., ATT and Defence Therapeutics go up and down completely randomly.

Pair Corralation between ATT and Defence Therapeutics

Taking into account the 90-day investment horizon ATT is expected to generate 4.46 times less return on investment than Defence Therapeutics. But when comparing it to its historical volatility, ATT Inc is 8.12 times less risky than Defence Therapeutics. It trades about 0.38 of its potential returns per unit of risk. Defence Therapeutics is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  39.00  in Defence Therapeutics on December 2, 2024 and sell it today you would earn a total of  40.00  from holding Defence Therapeutics or generate 102.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

ATT Inc  vs.  Defence Therapeutics

ATT Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Defence Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Defence Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ATT and Defence Therapeutics

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

The idea behind ATT Inc and Defence Therapeutics 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.