Correlation Between SECOM CO and ABB PAR
Can any of the company-specific risk be diversified away by investing in both SECOM CO and ABB PAR 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 SECOM CO and ABB PAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SECOM LTD and ABB PAR AB, you can compare the effects of market volatilities on SECOM CO and ABB PAR 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 SECOM CO with a short position of ABB PAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of SECOM CO and ABB PAR.
Diversification Opportunities for SECOM CO and ABB PAR
Poor diversification
The 3 months correlation between SECOM and ABB is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SECOM LTD and ABB PAR AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB PAR AB and SECOM CO 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 SECOM LTD are associated (or correlated) with ABB PAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB PAR AB has no effect on the direction of SECOM CO i.e., SECOM CO and ABB PAR go up and down completely randomly.
Pair Corralation between SECOM CO and ABB PAR
Assuming the 90 days horizon SECOM LTD is expected to generate 0.81 times more return on investment than ABB PAR. However, SECOM LTD is 1.23 times less risky than ABB PAR. It trades about 0.07 of its potential returns per unit of risk. ABB PAR AB is currently generating about -0.16 per unit of risk. If you would invest 3,180 in SECOM LTD on September 28, 2024 and sell it today you would earn a total of 40.00 from holding SECOM LTD or generate 1.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SECOM LTD vs. ABB PAR AB
Performance |
| Timeline |
| SECOM LTD |
| ABB PAR AB |
SECOM CO and ABB PAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SECOM CO and ABB PAR
The main advantage of trading using opposite SECOM CO and ABB PAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SECOM CO position performs unexpectedly, ABB PAR 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 ABB PAR will offset losses from the drop in ABB PAR's long position.The idea behind SECOM LTD and ABB PAR AB 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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