Correlation Between Primary Health and Aeorema Communications

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

By analyzing existing cross correlation between Primary Health Properties and Aeorema Communications Plc, you can compare the effects of market volatilities on Primary Health and Aeorema Communications 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 Primary Health with a short position of Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Primary Health and Aeorema Communications.

Diversification Opportunities for Primary Health and Aeorema Communications

0.23

Correlation Coefficient

Primary Health  Aeorema Communications

Modest diversification

The 3 months correlation between Primary and Aeorema is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Primary Health Properties and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications and Primary Health 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 Primary Health Properties are associated (or correlated) with Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Primary Health i.e., Primary Health and Aeorema Communications go up and down completely randomly.

Pair Corralation between Primary Health and Aeorema Communications

Assuming the 90 days trading horizon Primary Health Properties is expected to under-perform the Aeorema Communications. But the stock apears to be less risky and, when comparing its historical volatility, Primary Health Properties is 1.27 times less risky than Aeorema Communications. The stock trades about -0.09 of its potential returns per unit of risk. The Aeorema Communications Plc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,750  in Aeorema Communications Plc on September 12, 2024 and sell it today you would lose (150.00) from holding Aeorema Communications Plc or give up 2.61% of portfolio value over 90 days.

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

Primary Health Properties  vs.  Aeorema Communications Plc

Primary Health Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Primary Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Primary Health is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Aeorema Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Primary Health and Aeorema Communications

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

The idea behind Primary Health Properties and Aeorema Communications Plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.