Correlation Between Advanced Echem and Asia Electronic

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

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

Diversification Opportunities for Advanced Echem and Asia Electronic

-0.45

Correlation Coefficient

Advanced Echem  Asia Electronic

Very good diversification

The 3 months correlation between Advanced and Asia is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Echem Materials and Asia Electronic Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Electronic Material and Advanced Echem 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 Advanced Echem Materials are associated (or correlated) with Asia Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Electronic Material has no effect on the direction of Advanced Echem i.e., Advanced Echem and Asia Electronic go up and down completely randomly.

Pair Corralation between Advanced Echem and Asia Electronic

Assuming the 90 days trading horizon Advanced Echem Materials is expected to generate 1.16 times more return on investment than Asia Electronic. However, Advanced Echem is 1.16 times more volatile than Asia Electronic Material. It trades about 0.09 of its potential returns per unit of risk. Asia Electronic Material is currently generating about -0.05 per unit of risk. If you would invest  61,100  in Advanced Echem Materials on September 15, 2024 and sell it today you would earn a total of  6,800  from holding Advanced Echem Materials or generate 11.13% return on investment over 90 days.

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

Advanced Echem Materials  vs.  Asia Electronic Material

Advanced Echem Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Echem Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Echem may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Asia Electronic Material

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Advanced Echem and Asia Electronic

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

The idea behind Advanced Echem Materials and Asia Electronic Material 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.