Correlation Between Transport and POT

Can any of the company-specific risk be diversified away by investing in both Transport and POT 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 POT 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 PostTelecommunication Equipment, you can compare the effects of market volatilities on Transport and POT 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 POT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport and POT.

Diversification Opportunities for Transport and POT

0.67

Correlation Coefficient

Transport  POT

Poor diversification

The 3 months correlation between Transport and POT is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Transport and Industry and PostTelecommunication Equipmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PostTelecommunication 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 POT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PostTelecommunication has no effect on the direction of Transport i.e., Transport and POT go up and down completely randomly.

Pair Corralation between Transport and POT

Assuming the 90 days trading horizon Transport and Industry is expected to under-perform the POT. But the stock apears to be less risky and, when comparing its historical volatility, Transport and Industry is 3.18 times less risky than POT. The stock trades about -0.18 of its potential returns per unit of risk. The PostTelecommunication Equipment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,560,000  in PostTelecommunication Equipment on October 20, 2024 and sell it today you would lose (10,000) from holding PostTelecommunication Equipment or give up 0.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	54.55%
Values	Daily Returns

Transport and Industry  vs.  PostTelecommunication Equipmen

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.

PostTelecommunication

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Transport and POT

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

The idea behind Transport and Industry and PostTelecommunication Equipment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.