Correlation Between Aerospace and Road Environment

Can any of the company-specific risk be diversified away by investing in both Aerospace and Road Environment 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 Aerospace and Road Environment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aerospace Hi Tech Holding and Road Environment Technology, you can compare the effects of market volatilities on Aerospace and Road Environment 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 Aerospace with a short position of Road Environment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace and Road Environment.

Diversification Opportunities for Aerospace and Road Environment

0.85

Correlation Coefficient

Aerospace  Road Environment

Very poor diversification

The 3 months correlation between Aerospace and Road is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Hi Tech Holding and Road Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Road Environment Tec and Aerospace 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 Aerospace Hi Tech Holding are associated (or correlated) with Road Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Road Environment Tec has no effect on the direction of Aerospace i.e., Aerospace and Road Environment go up and down completely randomly.

Pair Corralation between Aerospace and Road Environment

Assuming the 90 days trading horizon Aerospace is expected to generate 1.32 times less return on investment than Road Environment. In addition to that, Aerospace is 1.04 times more volatile than Road Environment Technology. It trades about 0.13 of its total potential returns per unit of risk. Road Environment Technology is currently generating about 0.18 per unit of volatility. If you would invest  1,029  in Road Environment Technology on September 23, 2024 and sell it today you would earn a total of  455.00  from holding Road Environment Technology or generate 44.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Aerospace Hi Tech Holding  vs.  Road Environment Technology

Aerospace Hi Tech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerospace Hi Tech Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Road Environment Tec

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Road Environment Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Road Environment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerospace and Road Environment

The main advantage of trading using opposite Aerospace and Road Environment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerospace position performs unexpectedly, Road Environment 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 Road Environment will offset losses from the drop in Road Environment's long position.

The idea behind Aerospace Hi Tech Holding and Road Environment Technology 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.