Correlation Between XAAR PLC and SEIKO EPSON

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

By analyzing existing cross correlation between XAAR PLC LS 10 and SEIKO EPSON PADR, you can compare the effects of market volatilities on XAAR PLC and SEIKO EPSON 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 XAAR PLC with a short position of SEIKO EPSON. Check out your portfolio center. Please also check ongoing floating volatility patterns of XAAR PLC and SEIKO EPSON.

Diversification Opportunities for XAAR PLC and SEIKO EPSON

-0.32

Correlation Coefficient

XAAR PLC  SEIKO EPSON

Very good diversification

The 3 months correlation between XAAR and SEIKO is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding XAAR PLC LS 10 and SEIKO EPSON PADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEIKO EPSON PADR and XAAR PLC 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 XAAR PLC LS 10 are associated (or correlated) with SEIKO EPSON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEIKO EPSON PADR has no effect on the direction of XAAR PLC i.e., XAAR PLC and SEIKO EPSON go up and down completely randomly.

Pair Corralation between XAAR PLC and SEIKO EPSON

Assuming the 90 days horizon XAAR PLC LS 10 is expected to under-perform the SEIKO EPSON. In addition to that, XAAR PLC is 1.24 times more volatile than SEIKO EPSON PADR. It trades about -0.17 of its total potential returns per unit of risk. SEIKO EPSON PADR is currently generating about 0.07 per unit of volatility. If you would invest  704.00  in SEIKO EPSON PADR on September 27, 2024 and sell it today you would earn a total of  141.00  from holding SEIKO EPSON PADR or generate 20.03% return on investment over 90 days.

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

XAAR PLC LS 10  vs.  SEIKO EPSON PADR

XAAR PLC LS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XAAR PLC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SEIKO EPSON PADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SEIKO EPSON PADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SEIKO EPSON is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with XAAR PLC and SEIKO EPSON

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

The idea behind XAAR PLC LS 10 and SEIKO EPSON PADR 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.