Correlation Between Aqua Power and Buildablock Corp

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

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

Diversification Opportunities for Aqua Power and Buildablock Corp

-0.07

Correlation Coefficient

Aqua Power  Buildablock Corp

Good diversification

The 3 months correlation between Aqua and Buildablock is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Aqua Power Systems and Buildablock Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buildablock Corp and Aqua Power 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 Aqua Power Systems are associated (or correlated) with Buildablock Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buildablock Corp has no effect on the direction of Aqua Power i.e., Aqua Power and Buildablock Corp go up and down completely randomly.

Pair Corralation between Aqua Power and Buildablock Corp

Given the investment horizon of 90 days Aqua Power is expected to generate 379.49 times less return on investment than Buildablock Corp. But when comparing it to its historical volatility, Aqua Power Systems is 22.07 times less risky than Buildablock Corp. It trades about 0.02 of its potential returns per unit of risk. Buildablock Corp is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  175.00  in Buildablock Corp on September 14, 2024 and sell it today you would lose (115.00) from holding Buildablock Corp or give up 65.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.74%
Values	Daily Returns

Aqua Power Systems  vs.  Buildablock Corp

Aqua Power Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua Power Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Aqua Power demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Buildablock Corp

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Buildablock Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite sluggish fundamental drivers, Buildablock Corp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aqua Power and Buildablock Corp

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

The idea behind Aqua Power Systems and Buildablock Corp 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.