Correlation Between Allied Electronics and Investec PLC
Can any of the company-specific risk be diversified away by investing in both Allied Electronics and Investec PLC 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 Allied Electronics and Investec PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Allied Electronics and Investec PLC, you can compare the effects of market volatilities on Allied Electronics and Investec PLC 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 Allied Electronics with a short position of Investec PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Electronics and Investec PLC.
Diversification Opportunities for Allied Electronics and Investec PLC
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Allied and Investec is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Investec PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec PLC and Allied Electronics 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 Allied Electronics are associated (or correlated) with Investec PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec PLC has no effect on the direction of Allied Electronics i.e., Allied Electronics and Investec PLC go up and down completely randomly.
Pair Corralation between Allied Electronics and Investec PLC
Assuming the 90 days trading horizon Allied Electronics is expected to generate 1.65 times more return on investment than Investec PLC. However, Allied Electronics is 1.65 times more volatile than Investec PLC. It trades about 0.08 of its potential returns per unit of risk. Investec PLC is currently generating about 0.05 per unit of risk. If you would invest 88,976 in Allied Electronics on September 5, 2024 and sell it today you would earn a total of 111,024 from holding Allied Electronics or generate 124.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Allied Electronics vs. Investec PLC
Performance |
| Timeline |
| Allied Electronics |
| Investec PLC |
Allied Electronics and Investec PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allied Electronics and Investec PLC
The main advantage of trading using opposite Allied Electronics and Investec PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Electronics position performs unexpectedly, Investec PLC 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 Investec PLC will offset losses from the drop in Investec PLC's long position.| Allied Electronics vs. Blue Label Telecoms | Allied Electronics vs. HomeChoice Investments | Allied Electronics vs. CA Sales Holdings | Allied Electronics vs. Astral Foods |
| Investec PLC vs. CA Sales Holdings | Investec PLC vs. Bytes Technology | Investec PLC vs. RCL Foods | Investec PLC vs. Harmony Gold Mining |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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