Correlation Between Delta Manufacturing and Ausom Enterprise

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

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

Diversification Opportunities for Delta Manufacturing and Ausom Enterprise

0.02

Correlation Coefficient

Delta Manufacturing  Ausom Enterprise

Significant diversification

The 3 months correlation between Delta and Ausom is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Delta Manufacturing Limited and Ausom Enterprise Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ausom Enterprise and Delta Manufacturing 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 Delta Manufacturing Limited are associated (or correlated) with Ausom Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ausom Enterprise has no effect on the direction of Delta Manufacturing i.e., Delta Manufacturing and Ausom Enterprise go up and down completely randomly.

Pair Corralation between Delta Manufacturing and Ausom Enterprise

Assuming the 90 days trading horizon Delta Manufacturing Limited is expected to generate 0.73 times more return on investment than Ausom Enterprise. However, Delta Manufacturing Limited is 1.37 times less risky than Ausom Enterprise. It trades about 0.09 of its potential returns per unit of risk. Ausom Enterprise Limited is currently generating about 0.04 per unit of risk. If you would invest  8,968  in Delta Manufacturing Limited on August 31, 2024 and sell it today you would earn a total of  1,527  from holding Delta Manufacturing Limited or generate 17.03% return on investment over 90 days.

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

Delta Manufacturing Limited  vs.  Ausom Enterprise Limited

Delta Manufacturing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, Delta Manufacturing sustained solid returns over the last few months and may actually be approaching a breakup point.

Ausom Enterprise

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ausom Enterprise Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Ausom Enterprise displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Manufacturing and Ausom Enterprise

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

The idea behind Delta Manufacturing Limited and Ausom Enterprise 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.