Correlation Between Solution Advanced and Solus Advanced

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

By analyzing existing cross correlation between Solution Advanced Technology and Solus Advanced Materials, you can compare the effects of market volatilities on Solution Advanced and Solus Advanced 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 Solution Advanced with a short position of Solus Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solution Advanced and Solus Advanced.

Diversification Opportunities for Solution Advanced and Solus Advanced

0.6

Correlation Coefficient

Solution Advanced  Solus Advanced

Poor diversification

The 3 months correlation between Solution and Solus is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and Solus Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solus Advanced Materials and Solution Advanced 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 Solution Advanced Technology are associated (or correlated) with Solus Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solus Advanced Materials has no effect on the direction of Solution Advanced i.e., Solution Advanced and Solus Advanced go up and down completely randomly.

Pair Corralation between Solution Advanced and Solus Advanced

Assuming the 90 days trading horizon Solution Advanced Technology is expected to generate 0.9 times more return on investment than Solus Advanced. However, Solution Advanced Technology is 1.11 times less risky than Solus Advanced. It trades about -0.1 of its potential returns per unit of risk. Solus Advanced Materials is currently generating about -0.17 per unit of risk. If you would invest  175,700  in Solution Advanced Technology on September 13, 2024 and sell it today you would lose (30,700) from holding Solution Advanced Technology or give up 17.47% of portfolio value over 90 days.

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

Solution Advanced Technology  vs.  Solus Advanced Materials

Solution Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solution Advanced Technology 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.

Solus Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solus Advanced Materials 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 Solution Advanced and Solus Advanced

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

The idea behind Solution Advanced Technology and Solus Advanced Materials 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.