Correlation Between Advanced Technology and Bright Dairy

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

By analyzing existing cross correlation between Advanced Technology Materials and Bright Dairy Food, you can compare the effects of market volatilities on Advanced Technology and Bright Dairy 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 Advanced Technology with a short position of Bright Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Technology and Bright Dairy.

Diversification Opportunities for Advanced Technology and Bright Dairy

0.72

Correlation Coefficient

Advanced Technology  Bright Dairy

Poor diversification

The 3 months correlation between Advanced and Bright is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Technology Materials and Bright Dairy Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Dairy Food and Advanced Technology 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 Advanced Technology Materials are associated (or correlated) with Bright Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Dairy Food has no effect on the direction of Advanced Technology i.e., Advanced Technology and Bright Dairy go up and down completely randomly.

Pair Corralation between Advanced Technology and Bright Dairy

Assuming the 90 days trading horizon Advanced Technology Materials is expected to generate 1.52 times more return on investment than Bright Dairy. However, Advanced Technology is 1.52 times more volatile than Bright Dairy Food. It trades about 0.15 of its potential returns per unit of risk. Bright Dairy Food is currently generating about 0.07 per unit of risk. If you would invest  862.00  in Advanced Technology Materials on September 26, 2024 and sell it today you would earn a total of  282.00  from holding Advanced Technology Materials or generate 32.71% return on investment over 90 days.

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

Advanced Technology Materials  vs.  Bright Dairy Food

Advanced Technology

Risk-Adjusted Performance

11 of 100

Good

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

Bright Dairy Food

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Dairy Food are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bright Dairy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Advanced Technology and Bright Dairy

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

The idea behind Advanced Technology Materials and Bright Dairy Food 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.