Correlation Between Power Finance and Aban Offshore

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

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

Diversification Opportunities for Power Finance and Aban Offshore

0.2

Correlation Coefficient

Power Finance  Aban Offshore

Modest diversification

The 3 months correlation between Power and Aban is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance and Aban Offshore Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aban Offshore Limited and Power Finance 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 Power Finance are associated (or correlated) with Aban Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aban Offshore Limited has no effect on the direction of Power Finance i.e., Power Finance and Aban Offshore go up and down completely randomly.

Pair Corralation between Power Finance and Aban Offshore

Assuming the 90 days trading horizon Power Finance is expected to under-perform the Aban Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Power Finance is 1.29 times less risky than Aban Offshore. The stock trades about -0.2 of its potential returns per unit of risk. The Aban Offshore Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,247  in Aban Offshore Limited on September 27, 2024 and sell it today you would earn a total of  120.00  from holding Aban Offshore Limited or generate 1.92% return on investment over 90 days.

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

Power Finance  vs.  Aban Offshore Limited

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Aban Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aban Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Power Finance and Aban Offshore

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

The idea behind Power Finance and Aban Offshore 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.