Correlation Between Wonderful and Asia Metal
Can any of the company-specific risk be diversified away by investing in both Wonderful and Asia Metal 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 Wonderful and Asia Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wonderful Hi Tech Co and Asia Metal Industries, you can compare the effects of market volatilities on Wonderful and Asia Metal 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 Wonderful with a short position of Asia Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wonderful and Asia Metal.
Diversification Opportunities for Wonderful and Asia Metal
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Wonderful and Asia is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wonderful Hi Tech Co and Asia Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Metal Industries and Wonderful 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 Wonderful Hi Tech Co are associated (or correlated) with Asia Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Metal Industries has no effect on the direction of Wonderful i.e., Wonderful and Asia Metal go up and down completely randomly.
Pair Corralation between Wonderful and Asia Metal
Assuming the 90 days trading horizon Wonderful Hi Tech Co is expected to generate 1.42 times more return on investment than Asia Metal. However, Wonderful is 1.42 times more volatile than Asia Metal Industries. It trades about -0.05 of its potential returns per unit of risk. Asia Metal Industries is currently generating about -0.15 per unit of risk. If you would invest 3,550 in Wonderful Hi Tech Co on November 3, 2024 and sell it today you would lose (60.00) from holding Wonderful Hi Tech Co or give up 1.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wonderful Hi Tech Co vs. Asia Metal Industries
Performance |
| Timeline |
| Wonderful Hi Tech |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Asia Metal Industries |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Wonderful and Asia Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wonderful and Asia Metal
The main advantage of trading using opposite Wonderful and Asia Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wonderful position performs unexpectedly, Asia Metal 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 Asia Metal will offset losses from the drop in Asia Metal's long position.The idea behind Wonderful Hi Tech Co and Asia Metal Industries 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.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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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