Correlation Between Action Construction and COSMO FIRST

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

By analyzing existing cross correlation between Action Construction Equipment and COSMO FIRST LIMITED, you can compare the effects of market volatilities on Action Construction and COSMO FIRST 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 Action Construction with a short position of COSMO FIRST. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and COSMO FIRST.

Diversification Opportunities for Action Construction and COSMO FIRST

0.67

Correlation Coefficient

Action Construction  COSMO FIRST

Poor diversification

The 3 months correlation between Action and COSMO is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and COSMO FIRST LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSMO FIRST LIMITED and Action Construction 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 Action Construction Equipment are associated (or correlated) with COSMO FIRST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSMO FIRST LIMITED has no effect on the direction of Action Construction i.e., Action Construction and COSMO FIRST go up and down completely randomly.

Pair Corralation between Action Construction and COSMO FIRST

Assuming the 90 days trading horizon Action Construction is expected to generate 4.89 times less return on investment than COSMO FIRST. But when comparing it to its historical volatility, Action Construction Equipment is 1.03 times less risky than COSMO FIRST. It trades about 0.03 of its potential returns per unit of risk. COSMO FIRST LIMITED is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  74,020  in COSMO FIRST LIMITED on September 24, 2024 and sell it today you would earn a total of  21,385  from holding COSMO FIRST LIMITED or generate 28.89% return on investment over 90 days.

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

Action Construction Equipment  vs.  COSMO FIRST LIMITED

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Action Construction is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

COSMO FIRST LIMITED

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSMO FIRST LIMITED are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, COSMO FIRST demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Action Construction and COSMO FIRST

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

The idea behind Action Construction Equipment and COSMO FIRST LIMITED 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.