Correlation Between Asia Optical and LARGAN Precision

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

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

Diversification Opportunities for Asia Optical and LARGAN Precision

0.77

Correlation Coefficient

Asia Optical  LARGAN Precision

Poor diversification

The 3 months correlation between Asia and LARGAN is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Asia Optical Co and LARGAN Precision Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LARGAN Precision and Asia Optical 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 Asia Optical Co are associated (or correlated) with LARGAN Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LARGAN Precision has no effect on the direction of Asia Optical i.e., Asia Optical and LARGAN Precision go up and down completely randomly.

Pair Corralation between Asia Optical and LARGAN Precision

Assuming the 90 days trading horizon Asia Optical Co is expected to generate 1.3 times more return on investment than LARGAN Precision. However, Asia Optical is 1.3 times more volatile than LARGAN Precision Co. It trades about 0.0 of its potential returns per unit of risk. LARGAN Precision Co is currently generating about -0.09 per unit of risk. If you would invest  11,650  in Asia Optical Co on September 4, 2024 and sell it today you would lose (400.00) from holding Asia Optical Co or give up 3.43% of portfolio value over 90 days.

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

Asia Optical Co  vs.  LARGAN Precision Co

Asia Optical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Optical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Asia Optical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LARGAN Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LARGAN Precision Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Asia Optical and LARGAN Precision

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

The idea behind Asia Optical Co and LARGAN Precision 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.