Correlation Between AMS Small and Basic Fit

Can any of the company-specific risk be diversified away by investing in both AMS Small and Basic Fit 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 AMS Small and Basic Fit into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AMS Small Cap and Basic Fit NV, you can compare the effects of market volatilities on AMS Small and Basic Fit 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 AMS Small with a short position of Basic Fit. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Basic Fit.

Diversification Opportunities for AMS Small and Basic Fit

-0.2

Correlation Coefficient

AMS Small  Basic Fit

Good diversification

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

Pair Corralation between AMS Small and Basic Fit

Assuming the 90 days trading horizon AMS Small Cap is expected to under-perform the Basic Fit. But the index apears to be less risky and, when comparing its historical volatility, AMS Small Cap is 1.77 times less risky than Basic Fit. The index trades about -0.36 of its potential returns per unit of risk. The Basic Fit NV is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,160  in Basic Fit NV on February 4, 2024 and sell it today you would lose (48.00) from holding Basic Fit NV or give up 2.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

AMS Small Cap  vs.  Basic Fit NV

Pair Trading with AMS Small and Basic Fit

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

The idea behind AMS Small Cap and Basic Fit NV 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.