Can any of the company-specific risk be diversified away by investing in both A2Z Smart and Boeing 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 A2Z Smart and Boeing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between A2Z Smart Technologies and The Boeing, you can compare the effects of market volatilities on A2Z Smart and Boeing 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 A2Z Smart with a short position of Boeing. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2Z Smart and Boeing.
Diversification Opportunities for A2Z Smart and Boeing
The 3 months correlation between A2Z and Boeing is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding A2Z Smart Technologies and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing and A2Z Smart 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 A2Z Smart Technologies are associated (or correlated) with Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of A2Z Smart i.e., A2Z Smart and Boeing go up and down completely randomly.
Allowing for the 90-day total investment horizon A2Z Smart Technologies is expected to under-perform the Boeing. In addition to that, A2Z Smart is 3.74 times more volatile than The Boeing. It trades about -0.07 of its total potential returns per unit of risk. The Boeing is currently generating about 0.63 per unit of volatility. If you would invest 19,201 in The Boeing on September 3, 2023 and sell it today you would earn a total of 4,186 from holding The Boeing or generate 21.8% return on investment over 90 days.
Over the last 90 days A2Z Smart Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Boeing is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite A2Z Smart and Boeing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A2Z Smart position performs unexpectedly, Boeing 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 Boeing will offset losses from the drop in Boeing's long position.
The idea behind A2Z Smart Technologies and The Boeing 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.
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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