Correlation Between ISU Chemical and ABCO Electronics

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

By analyzing existing cross correlation between ISU Chemical Co and ABCO Electronics Co, you can compare the effects of market volatilities on ISU Chemical and ABCO Electronics 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 ISU Chemical with a short position of ABCO Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ISU Chemical and ABCO Electronics.

Diversification Opportunities for ISU Chemical and ABCO Electronics

0.96

Correlation Coefficient

ISU Chemical  ABCO Electronics

Almost no diversification

The 3 months correlation between ISU and ABCO is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding ISU Chemical Co and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics and ISU Chemical 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 ISU Chemical Co are associated (or correlated) with ABCO Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABCO Electronics has no effect on the direction of ISU Chemical i.e., ISU Chemical and ABCO Electronics go up and down completely randomly.

Pair Corralation between ISU Chemical and ABCO Electronics

Assuming the 90 days trading horizon ISU Chemical Co is expected to under-perform the ABCO Electronics. But the stock apears to be less risky and, when comparing its historical volatility, ISU Chemical Co is 1.07 times less risky than ABCO Electronics. The stock trades about -0.19 of its potential returns per unit of risk. The ABCO Electronics Co is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  606,000  in ABCO Electronics Co on September 24, 2024 and sell it today you would lose (155,500) from holding ABCO Electronics Co or give up 25.66% of portfolio value over 90 days.

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

ISU Chemical Co  vs.  ABCO Electronics Co

ISU Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ISU Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ABCO Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABCO Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ISU Chemical and ABCO Electronics

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

The idea behind ISU Chemical Co and ABCO Electronics 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.