Correlation Between Optronics Technologies and Karelia Tobacco
Can any of the company-specific risk be diversified away by investing in both Optronics Technologies and Karelia Tobacco 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 Optronics Technologies and Karelia Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Optronics Technologies SA and Karelia Tobacco, you can compare the effects of market volatilities on Optronics Technologies and Karelia Tobacco 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 Optronics Technologies with a short position of Karelia Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optronics Technologies and Karelia Tobacco.
Diversification Opportunities for Optronics Technologies and Karelia Tobacco
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Optronics and Karelia is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Optronics Technologies SA and Karelia Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karelia Tobacco and Optronics Technologies 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 Optronics Technologies SA are associated (or correlated) with Karelia Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karelia Tobacco has no effect on the direction of Optronics Technologies i.e., Optronics Technologies and Karelia Tobacco go up and down completely randomly.
Pair Corralation between Optronics Technologies and Karelia Tobacco
Assuming the 90 days trading horizon Optronics Technologies SA is expected to under-perform the Karelia Tobacco. In addition to that, Optronics Technologies is 1.07 times more volatile than Karelia Tobacco. It trades about -0.22 of its total potential returns per unit of risk. Karelia Tobacco is currently generating about -0.18 per unit of volatility. If you would invest 33,800 in Karelia Tobacco on November 27, 2024 and sell it today you would lose (1,800) from holding Karelia Tobacco or give up 5.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Optronics Technologies SA vs. Karelia Tobacco
Performance |
| Timeline |
| Optronics Technologies |
| Karelia Tobacco |
Optronics Technologies and Karelia Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Optronics Technologies and Karelia Tobacco
The main advantage of trading using opposite Optronics Technologies and Karelia Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Optronics Technologies position performs unexpectedly, Karelia Tobacco 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 Karelia Tobacco will offset losses from the drop in Karelia Tobacco's long position.The idea behind Optronics Technologies SA and Karelia Tobacco 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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