Correlation Between ABCO Electronics and HJ ShipBuilding

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

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

Diversification Opportunities for ABCO Electronics and HJ ShipBuilding

-0.51

Correlation Coefficient

ABCO Electronics  HJ ShipBuilding

Excellent diversification

The 3 months correlation between ABCO and 097230 is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and HJ ShipBuilding Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HJ ShipBuilding Cons and ABCO Electronics 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 ABCO Electronics Co are associated (or correlated) with HJ ShipBuilding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HJ ShipBuilding Cons has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and HJ ShipBuilding go up and down completely randomly.

Pair Corralation between ABCO Electronics and HJ ShipBuilding

Assuming the 90 days trading horizon ABCO Electronics Co is expected to under-perform the HJ ShipBuilding. But the stock apears to be less risky and, when comparing its historical volatility, ABCO Electronics Co is 1.51 times less risky than HJ ShipBuilding. The stock trades about -0.06 of its potential returns per unit of risk. The HJ ShipBuilding Construction is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  278,500  in HJ ShipBuilding Construction on September 5, 2024 and sell it today you would earn a total of  156,500  from holding HJ ShipBuilding Construction or generate 56.19% return on investment over 90 days.

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

ABCO Electronics Co  vs.  HJ ShipBuilding Construction

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

HJ ShipBuilding Cons

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with ABCO Electronics and HJ ShipBuilding

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

The idea behind ABCO Electronics Co and HJ ShipBuilding Construction 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.