Correlation Between Prime Road and Sermsang Power

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

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

Diversification Opportunities for Prime Road and Sermsang Power

0.68

Correlation Coefficient

Prime Road  Sermsang Power

Poor diversification

The 3 months correlation between Prime and Sermsang is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Prime Road Power and Sermsang Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sermsang Power and Prime Road 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 Prime Road Power are associated (or correlated) with Sermsang Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sermsang Power has no effect on the direction of Prime Road i.e., Prime Road and Sermsang Power go up and down completely randomly.

Pair Corralation between Prime Road and Sermsang Power

Assuming the 90 days trading horizon Prime Road Power is expected to generate 4.71 times more return on investment than Sermsang Power. However, Prime Road is 4.71 times more volatile than Sermsang Power. It trades about -0.02 of its potential returns per unit of risk. Sermsang Power is currently generating about -0.15 per unit of risk. If you would invest  25.00  in Prime Road Power on September 5, 2024 and sell it today you would lose (3.00) from holding Prime Road Power or give up 12.0% of portfolio value over 90 days.

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

Prime Road Power  vs.  Sermsang Power

Prime Road Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Road Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Prime Road is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sermsang Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sermsang Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Prime Road and Sermsang Power

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

The idea behind Prime Road Power and Sermsang Power 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.