Correlation Between Digital Telecommunicatio and AIM Industrial
Can any of the company-specific risk be diversified away by investing in both Digital Telecommunicatio and AIM Industrial 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 Digital Telecommunicatio and AIM Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Digital Telecommunications Infrastructure and AIM Industrial Growth, you can compare the effects of market volatilities on Digital Telecommunicatio and AIM Industrial 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 Digital Telecommunicatio with a short position of AIM Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Telecommunicatio and AIM Industrial.
Diversification Opportunities for Digital Telecommunicatio and AIM Industrial
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Digital and AIM is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Digital Telecommunications Inf and AIM Industrial Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIM Industrial Growth and Digital Telecommunicatio 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 Digital Telecommunications Infrastructure are associated (or correlated) with AIM Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIM Industrial Growth has no effect on the direction of Digital Telecommunicatio i.e., Digital Telecommunicatio and AIM Industrial go up and down completely randomly.
Pair Corralation between Digital Telecommunicatio and AIM Industrial
Assuming the 90 days trading horizon Digital Telecommunications Infrastructure is expected to under-perform the AIM Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Digital Telecommunications Infrastructure is 1.01 times less risky than AIM Industrial. The stock trades about -0.24 of its potential returns per unit of risk. The AIM Industrial Growth is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,058 in AIM Industrial Growth on September 2, 2024 and sell it today you would lose (8.00) from holding AIM Industrial Growth or give up 0.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Digital Telecommunications Inf vs. AIM Industrial Growth
Performance |
| Timeline |
| Digital Telecommunicatio |
| AIM Industrial Growth |
Digital Telecommunicatio and AIM Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Digital Telecommunicatio and AIM Industrial
The main advantage of trading using opposite Digital Telecommunicatio and AIM Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital Telecommunicatio position performs unexpectedly, AIM Industrial 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 AIM Industrial will offset losses from the drop in AIM Industrial's long position.The idea behind Digital Telecommunications Infrastructure and AIM Industrial Growth 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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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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