Can any of the company-specific risk be diversified away by investing in both ASX and Fintech Select 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 ASX and Fintech Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ASX Limited and Fintech Select, you can compare the effects of market volatilities on ASX and Fintech Select 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 ASX with a short position of Fintech Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASX and Fintech Select.
Diversification Opportunities for ASX and Fintech Select
The 3 months correlation between ASX and Fintech is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding ASX Limited and Fintech Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fintech Select and ASX 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 ASX Limited are associated (or correlated) with Fintech Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fintech Select has no effect on the direction of ASX i.e., ASX and Fintech Select go up and down completely randomly.
Assuming the 90 days horizon ASX Limited is expected to under-perform the Fintech Select. But the pink sheet apears to be less risky and, when comparing its historical volatility, ASX Limited is 28.19 times less risky than Fintech Select. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Fintech Select is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 0.51 in Fintech Select on March 6, 2024 and sell it today you would earn a total of 2.00 from holding Fintech Select or generate 392.16% return on investment over 90 days.
Over the last 90 days ASX Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Fintech Select are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fintech Select reported solid returns over the last few months and may actually be approaching a breakup point.