Correlation Between Aban Offshore and Power Finance

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

By analyzing existing cross correlation between Aban Offshore Limited and Power Finance, you can compare the effects of market volatilities on Aban Offshore and Power Finance 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 Aban Offshore with a short position of Power Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aban Offshore and Power Finance.

Diversification Opportunities for Aban Offshore and Power Finance

0.2

Correlation Coefficient

Aban Offshore  Power Finance

Modest diversification

The 3 months correlation between Aban and Power is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Aban Offshore Limited and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance and Aban Offshore 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 Aban Offshore Limited are associated (or correlated) with Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Aban Offshore i.e., Aban Offshore and Power Finance go up and down completely randomly.

Pair Corralation between Aban Offshore and Power Finance

Assuming the 90 days trading horizon Aban Offshore Limited is expected to under-perform the Power Finance. But the stock apears to be less risky and, when comparing its historical volatility, Aban Offshore Limited is 1.13 times less risky than Power Finance. The stock trades about -0.11 of its potential returns per unit of risk. The Power Finance is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  49,023  in Power Finance on September 27, 2024 and sell it today you would lose (3,903) from holding Power Finance or give up 7.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Aban Offshore Limited  vs.  Power Finance

Aban Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aban Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Aban Offshore and Power Finance

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

The idea behind Aban Offshore Limited and Power Finance 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.