Correlation Between Aerospace and Eastern Communications

Can any of the company-specific risk be diversified away by investing in both Aerospace and Eastern Communications 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 Eastern Communications 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 Eastern Communications Co, you can compare the effects of market volatilities on Aerospace and Eastern Communications 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 Eastern Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace and Eastern Communications.

Diversification Opportunities for Aerospace and Eastern Communications

0.88

Correlation Coefficient

Aerospace  Eastern Communications

Very poor diversification

The 3 months correlation between Aerospace and Eastern is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Hi Tech Holding and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications 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 Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of Aerospace i.e., Aerospace and Eastern Communications go up and down completely randomly.

Pair Corralation between Aerospace and Eastern Communications

Assuming the 90 days trading horizon Aerospace Hi Tech Holding is expected to generate 1.42 times more return on investment than Eastern Communications. However, Aerospace is 1.42 times more volatile than Eastern Communications Co. It trades about 0.13 of its potential returns per unit of risk. Eastern Communications Co is currently generating about 0.14 per unit of risk. If you would invest  922.00  in Aerospace Hi Tech Holding on September 23, 2024 and sell it today you would earn a total of  278.00  from holding Aerospace Hi Tech Holding or generate 30.15% 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.  Eastern Communications Co

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.

Eastern Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Communications Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerospace and Eastern Communications

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

The idea behind Aerospace Hi Tech Holding and Eastern Communications Co 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.