Correlation Between Aeorema Communications and SPDR SP

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

By analyzing existing cross correlation between Aeorema Communications Plc and SPDR SP Materials, you can compare the effects of market volatilities on Aeorema Communications and SPDR SP 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 Aeorema Communications with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and SPDR SP.

Diversification Opportunities for Aeorema Communications and SPDR SP

-0.39

Correlation Coefficient

Aeorema Communications  SPDR SP

Very good diversification

The 3 months correlation between Aeorema and SPDR is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and SPDR SP go up and down completely randomly.

Pair Corralation between Aeorema Communications and SPDR SP

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the SPDR SP. In addition to that, Aeorema Communications is 1.54 times more volatile than SPDR SP Materials. It trades about -0.03 of its total potential returns per unit of risk. SPDR SP Materials is currently generating about 0.01 per unit of volatility. If you would invest  4,434  in SPDR SP Materials on September 12, 2024 and sell it today you would earn a total of  14.00  from holding SPDR SP Materials or generate 0.32% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  SPDR SP Materials

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Aeorema Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP Materials

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days SPDR SP Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Aeorema Communications and SPDR SP

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

The idea behind Aeorema Communications Plc and SPDR SP 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 Global Correlations module to find global opportunities by holding instruments from different markets.