Correlation Between Concentric and ABB

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

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

Diversification Opportunities for Concentric and ABB

0.77

Correlation Coefficient

Concentric  ABB

Poor diversification

The 3 months correlation between Concentric and ABB is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Concentric AB and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Concentric 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 Concentric AB are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Concentric i.e., Concentric and ABB go up and down completely randomly.

Pair Corralation between Concentric and ABB

Assuming the 90 days trading horizon Concentric is expected to generate 1.68 times less return on investment than ABB. In addition to that, Concentric is 2.79 times more volatile than ABB. It trades about 0.02 of its total potential returns per unit of risk. ABB is currently generating about 0.12 per unit of volatility. If you would invest  31,044  in ABB on September 3, 2024 and sell it today you would earn a total of  30,916  from holding ABB or generate 99.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.79%
Values	Daily Returns

Concentric AB  vs.  ABB

Concentric AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

ABB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, ABB 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 Concentric and ABB

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

The idea behind Concentric AB and ABB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.