Correlation Between Aspen Technology and OSE All

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Can any of the company-specific risk be diversified away by investing in both Aspen Technology and OSE All 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 Aspen Technology and OSE All into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aspen Technology and OSE All, you can compare the effects of market volatilities on Aspen Technology and OSE All 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 Aspen Technology with a short position of OSE All. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Technology and OSE All.

Diversification Opportunities for Aspen Technology and OSE All

-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Aspen and OSEAX is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and OSE All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OSE All and Aspen Technology 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 Aspen Technology are associated (or correlated) with OSE All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OSE All has no effect on the direction of Aspen Technology i.e., Aspen Technology and OSE All go up and down completely randomly.
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Pair Corralation between Aspen Technology and OSE All

Given the investment horizon of 90 days Aspen Technology is expected to generate 7.19 times less return on investment than OSE All. But when comparing it to its historical volatility, Aspen Technology is 2.43 times less risky than OSE All. It trades about 0.08 of its potential returns per unit of risk. OSE All is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  107,943  in OSE All on August 28, 2022 and sell it today you would earn a total of  31,673  from holding OSE All or generate 29.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Aspen Technology  vs.  OSE All

 Performance (%) 
       Timeline  

Aspen Technology and OSE All Volatility Contrast

   Predicted Return Density   
       Returns  

OSE All

Pair trading matchups for OSE All

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against OSE All as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. OSE All's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, OSE All's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to OSE All.

Pair Trading with Aspen Technology and OSE All

The main advantage of trading using opposite Aspen Technology and OSE All positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Technology position performs unexpectedly, OSE All 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 OSE All will offset losses from the drop in OSE All's long position.
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The idea behind Aspen Technology and OSE All 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against OSE All as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. OSE All's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, OSE All's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to OSE All.
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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