Correlation Between Far Eastern and Allis Electric
Can any of the company-specific risk be diversified away by investing in both Far Eastern and Allis Electric 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 Far Eastern and Allis Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far Eastern Department and Allis Electric Co, you can compare the effects of market volatilities on Far Eastern and Allis Electric 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 Far Eastern with a short position of Allis Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Allis Electric.
Diversification Opportunities for Far Eastern and Allis Electric
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Far and Allis is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern Department and Allis Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allis Electric and Far Eastern 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 Far Eastern Department are associated (or correlated) with Allis Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allis Electric has no effect on the direction of Far Eastern i.e., Far Eastern and Allis Electric go up and down completely randomly.
Pair Corralation between Far Eastern and Allis Electric
Assuming the 90 days trading horizon Far Eastern Department is expected to under-perform the Allis Electric. But the stock apears to be less risky and, when comparing its historical volatility, Far Eastern Department is 2.27 times less risky than Allis Electric. The stock trades about -0.12 of its potential returns per unit of risk. The Allis Electric Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 10,750 in Allis Electric Co on September 1, 2024 and sell it today you would earn a total of 150.00 from holding Allis Electric Co or generate 1.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Far Eastern Department vs. Allis Electric Co
Performance |
| Timeline |
| Far Eastern Department |
| Allis Electric |
Far Eastern and Allis Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far Eastern and Allis Electric
The main advantage of trading using opposite Far Eastern and Allis Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Allis Electric 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 Allis Electric will offset losses from the drop in Allis Electric's long position.| Far Eastern vs. Chaintech Technology Corp | Far Eastern vs. AVerMedia Technologies | Far Eastern vs. Avision | Far Eastern vs. Clevo Co |
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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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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