Correlation Between S E and ATT
Can any of the company-specific risk be diversified away by investing in both S E and ATT 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 S E and ATT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between S E BANKEN A and ATT Inc, you can compare the effects of market volatilities on S E and ATT 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 S E with a short position of ATT. Check out your portfolio center. Please also check ongoing floating volatility patterns of S E and ATT.
Diversification Opportunities for S E and ATT
Average diversification
The 3 months correlation between SEBA and ATT is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding S E BANKEN A and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc and S E 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 S E BANKEN A are associated (or correlated) with ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of S E i.e., S E and ATT go up and down completely randomly.
Pair Corralation between S E and ATT
Assuming the 90 days trading horizon S E BANKEN A is expected to generate 1.57 times more return on investment than ATT. However, S E is 1.57 times more volatile than ATT Inc. It trades about -0.1 of its potential returns per unit of risk. ATT Inc is currently generating about -0.19 per unit of risk. If you would invest 1,274 in S E BANKEN A on January 20, 2024 and sell it today you would lose (41.00) from holding S E BANKEN A or give up 3.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
S E BANKEN A vs. ATT Inc
Performance |
| Timeline |
| S E BANKEN |
| ATT Inc |
S E and ATT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S E and ATT
The main advantage of trading using opposite S E and ATT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S E position performs unexpectedly, ATT 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 ATT will offset losses from the drop in ATT's long position.The idea behind S E BANKEN A and ATT Inc 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.| ATT vs. Grab Holdings | ATT vs. Cadence Design Systems | ATT vs. Aquagold International | ATT vs. Thrivent High Yield |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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