Correlation Between Arbor Technology and Asia Metal

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

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

Diversification Opportunities for Arbor Technology and Asia Metal

0.31

Correlation Coefficient

Arbor Technology  Asia Metal

Weak diversification

The 3 months correlation between Arbor and Asia is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Arbor Technology and Asia Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Metal Industries and Arbor Technology 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 Arbor Technology are associated (or correlated) with Asia Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Metal Industries has no effect on the direction of Arbor Technology i.e., Arbor Technology and Asia Metal go up and down completely randomly.

Pair Corralation between Arbor Technology and Asia Metal

Assuming the 90 days trading horizon Arbor Technology is expected to generate 2.06 times less return on investment than Asia Metal. But when comparing it to its historical volatility, Arbor Technology is 1.21 times less risky than Asia Metal. It trades about 0.07 of its potential returns per unit of risk. Asia Metal Industries is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,130  in Asia Metal Industries on September 3, 2024 and sell it today you would earn a total of  1,670  from holding Asia Metal Industries or generate 23.42% return on investment over 90 days.

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

Arbor Technology  vs.  Asia Metal Industries

Arbor Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arbor Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Asia Metal Industries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Metal Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Metal showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arbor Technology and Asia Metal

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

The idea behind Arbor Technology and Asia Metal Industries 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.