Correlation Between Transport and Asia Pacific

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

By analyzing existing cross correlation between Transport and Industry and Asia Pacific Investment, you can compare the effects of market volatilities on Transport and Asia Pacific 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 Transport with a short position of Asia Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport and Asia Pacific.

Diversification Opportunities for Transport and Asia Pacific

0.28

Correlation Coefficient

Transport  Asia Pacific

Modest diversification

The 3 months correlation between Transport and Asia is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Transport and Industry and Asia Pacific Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Pacific Investment and Transport 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 Transport and Industry are associated (or correlated) with Asia Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Pacific Investment has no effect on the direction of Transport i.e., Transport and Asia Pacific go up and down completely randomly.

Pair Corralation between Transport and Asia Pacific

Assuming the 90 days trading horizon Transport and Industry is expected to generate 0.61 times more return on investment than Asia Pacific. However, Transport and Industry is 1.65 times less risky than Asia Pacific. It trades about -0.18 of its potential returns per unit of risk. Asia Pacific Investment is currently generating about -0.13 per unit of risk. If you would invest  457,000  in Transport and Industry on October 20, 2024 and sell it today you would lose (24,000) from holding Transport and Industry or give up 5.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Transport and Industry  vs.  Asia Pacific Investment

Transport and Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport and Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Asia Pacific Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Pacific Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Asia Pacific is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Transport and Asia Pacific

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

The idea behind Transport and Industry and Asia Pacific Investment 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .