Correlation Between Technology One and High-Tech Metals

Can any of the company-specific risk be diversified away by investing in both Technology One and High-Tech Metals 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 Technology One and High-Tech Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Technology One and High Tech Metals, you can compare the effects of market volatilities on Technology One and High-Tech Metals 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 Technology One with a short position of High-Tech Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology One and High-Tech Metals.

Diversification Opportunities for Technology One and High-Tech Metals

-0.55

Correlation Coefficient

Technology One  High-Tech Metals

Excellent diversification

The 3 months correlation between Technology and High-Tech is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Technology One and High Tech Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Tech Metals and Technology One 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 Technology One are associated (or correlated) with High-Tech Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Tech Metals has no effect on the direction of Technology One i.e., Technology One and High-Tech Metals go up and down completely randomly.

Pair Corralation between Technology One and High-Tech Metals

Assuming the 90 days trading horizon Technology One is expected to under-perform the High-Tech Metals. But the stock apears to be less risky and, when comparing its historical volatility, Technology One is 5.22 times less risky than High-Tech Metals. The stock trades about -0.06 of its potential returns per unit of risk. The High Tech Metals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  16.00  in High Tech Metals on December 23, 2024 and sell it today you would earn a total of  9.00  from holding High Tech Metals or generate 56.25% return on investment over 90 days.

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

Technology One  vs.  High Tech Metals

Technology One

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology One has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Technology One is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

High Tech Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in High Tech Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, High-Tech Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Technology One and High-Tech Metals

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

The idea behind Technology One and High Tech Metals 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.