Correlation Between Stock Exchange and President Automobile

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

By analyzing existing cross correlation between Stock Exchange Of and President Automobile Industries, you can compare the effects of market volatilities on Stock Exchange and President Automobile 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 Stock Exchange with a short position of President Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and President Automobile.

Diversification Opportunities for Stock Exchange and President Automobile

-0.08

Correlation Coefficient

Stock Exchange  President Automobile

Good diversification

The 3 months correlation between Stock and President is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and President Automobile Industrie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on President Automobile and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with President Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of President Automobile has no effect on the direction of Stock Exchange i.e., Stock Exchange and President Automobile go up and down completely randomly.

Pair Corralation between Stock Exchange and President Automobile

Assuming the 90 days trading horizon Stock Exchange Of is expected to generate 0.46 times more return on investment than President Automobile. However, Stock Exchange Of is 2.18 times less risky than President Automobile. It trades about 0.04 of its potential returns per unit of risk. President Automobile Industries is currently generating about -0.13 per unit of risk. If you would invest  142,439  in Stock Exchange Of on September 13, 2024 and sell it today you would earn a total of  1,866  from holding Stock Exchange Of or generate 1.31% return on investment over 90 days.

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

Stock Exchange Of  vs.  President Automobile Industrie

Pair Trading with Stock Exchange and President Automobile

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

The idea behind Stock Exchange Of and President Automobile Industries 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.