Correlation Between ABB and McPhy Energy
Can any of the company-specific risk be diversified away by investing in both ABB and McPhy Energy 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 ABB and McPhy Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB and McPhy Energy SA, you can compare the effects of market volatilities on ABB and McPhy Energy 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 ABB with a short position of McPhy Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and McPhy Energy.
Diversification Opportunities for ABB and McPhy Energy
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between ABB and McPhy is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding ABB and McPhy Energy SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McPhy Energy SA and ABB 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 ABB are associated (or correlated) with McPhy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McPhy Energy SA has no effect on the direction of ABB i.e., ABB and McPhy Energy go up and down completely randomly.
Pair Corralation between ABB and McPhy Energy
Assuming the 90 days trading horizon ABB is expected to generate 0.53 times more return on investment than McPhy Energy. However, ABB is 1.89 times less risky than McPhy Energy. It trades about 0.04 of its potential returns per unit of risk. McPhy Energy SA is currently generating about -0.19 per unit of risk. If you would invest 5,000 in ABB on September 3, 2024 and sell it today you would earn a total of 450.00 from holding ABB or generate 9.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABB vs. McPhy Energy SA
Performance |
| Timeline |
| ABB |
| McPhy Energy SA |
ABB and McPhy Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and McPhy Energy
The main advantage of trading using opposite ABB and McPhy Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB position performs unexpectedly, McPhy Energy 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 McPhy Energy will offset losses from the drop in McPhy Energy's long position.The idea behind ABB and McPhy Energy SA 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.| McPhy Energy vs. MEDICAL FACILITIES NEW | McPhy Energy vs. Computershare Limited | McPhy Energy vs. Consolidated Communications Holdings | McPhy Energy vs. INTERSHOP Communications Aktiengesellschaft |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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