Correlation Between ICD and SFA Engineering

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

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

Diversification Opportunities for ICD and SFA Engineering

0.82

Correlation Coefficient

ICD  SFA Engineering

Very poor diversification

The 3 months correlation between ICD and SFA is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding ICD Co and SFA Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFA Engineering and ICD 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 ICD Co are associated (or correlated) with SFA Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFA Engineering has no effect on the direction of ICD i.e., ICD and SFA Engineering go up and down completely randomly.

Pair Corralation between ICD and SFA Engineering

Assuming the 90 days trading horizon ICD Co is expected to under-perform the SFA Engineering. But the stock apears to be less risky and, when comparing its historical volatility, ICD Co is 1.19 times less risky than SFA Engineering. The stock trades about -0.15 of its potential returns per unit of risk. The SFA Engineering is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,475,000  in SFA Engineering on August 31, 2024 and sell it today you would lose (390,000) from holding SFA Engineering or give up 15.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

ICD Co  vs.  SFA Engineering

ICD Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICD 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Engineering 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ICD and SFA Engineering

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

The idea behind ICD Co and SFA Engineering 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.