Correlation Between Technology One and Mystate

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

By analyzing existing cross correlation between Technology One and Mystate, you can compare the effects of market volatilities on Technology One and Mystate 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 Mystate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology One and Mystate.

Diversification Opportunities for Technology One and Mystate

0.63

Correlation Coefficient

Technology One  Mystate

Poor diversification

The 3 months correlation between Technology and Mystate is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Technology One and Mystate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mystate 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 Mystate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mystate has no effect on the direction of Technology One i.e., Technology One and Mystate go up and down completely randomly.

Pair Corralation between Technology One and Mystate

Assuming the 90 days trading horizon Technology One is expected to generate 1.07 times more return on investment than Mystate. However, Technology One is 1.07 times more volatile than Mystate. It trades about 0.26 of its potential returns per unit of risk. Mystate is currently generating about 0.1 per unit of risk. If you would invest  1,840  in Technology One on October 8, 2024 and sell it today you would earn a total of  1,226  from holding Technology One or generate 66.63% return on investment over 90 days.

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

Technology One  vs.  Mystate

Technology One

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Technology One are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Technology One unveiled solid returns over the last few months and may actually be approaching a breakup point.

Mystate

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mystate are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mystate unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Technology One and Mystate

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

The idea behind Technology One and Mystate 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.