Correlation Between AMS Small and Holland Colours

Can any of the company-specific risk be diversified away by investing in both AMS Small and Holland Colours 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 AMS Small and Holland Colours into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AMS Small Cap and Holland Colours NV, you can compare the effects of market volatilities on AMS Small and Holland Colours 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 AMS Small with a short position of Holland Colours. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Holland Colours.

Diversification Opportunities for AMS Small and Holland Colours

0.39

Correlation Coefficient

AMS Small  Holland Colours

Weak diversification

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

Pair Corralation between AMS Small and Holland Colours

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 0.43 times more return on investment than Holland Colours. However, AMS Small Cap is 2.33 times less risky than Holland Colours. It trades about -0.01 of its potential returns per unit of risk. Holland Colours NV is currently generating about 0.0 per unit of risk. If you would invest  131,366  in AMS Small Cap on September 13, 2024 and sell it today you would lose (6,225) from holding AMS Small Cap or give up 4.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.72%
Values	Daily Returns

AMS Small Cap  vs.  Holland Colours NV

Pair Trading with AMS Small and Holland Colours

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

The idea behind AMS Small Cap and Holland Colours NV 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.