Correlation Between Microfriend and GS Engineering

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

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

Diversification Opportunities for Microfriend and GS Engineering

-0.35

Correlation Coefficient

Microfriend  GS Engineering

Very good diversification

The 3 months correlation between Microfriend and 006360 is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and GS Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GS Engineering Const and Microfriend 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 Microfriend are associated (or correlated) with GS Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GS Engineering Const has no effect on the direction of Microfriend i.e., Microfriend and GS Engineering go up and down completely randomly.

Pair Corralation between Microfriend and GS Engineering

Assuming the 90 days trading horizon Microfriend is expected to generate 2.9 times more return on investment than GS Engineering. However, Microfriend is 2.9 times more volatile than GS Engineering Construction. It trades about 0.0 of its potential returns per unit of risk. GS Engineering Construction is currently generating about -0.02 per unit of risk. If you would invest  337,500  in Microfriend on September 1, 2024 and sell it today you would lose (30,000) from holding Microfriend or give up 8.89% of portfolio value over 90 days.

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

Microfriend  vs.  GS Engineering Construction

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Microfriend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GS Engineering Const

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GS Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GS Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microfriend and GS Engineering

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

The idea behind Microfriend and GS Engineering 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.