Correlation Between ELECOM and XAAR PLC

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

By analyzing existing cross correlation between ELECOM LTD and XAAR PLC LS 10, you can compare the effects of market volatilities on ELECOM and XAAR PLC 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 ELECOM with a short position of XAAR PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELECOM and XAAR PLC.

Diversification Opportunities for ELECOM and XAAR PLC

0.67

Correlation Coefficient

ELECOM  XAAR PLC

Poor diversification

The 3 months correlation between ELECOM and XAAR is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ELECOM LTD and XAAR PLC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XAAR PLC LS and ELECOM 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 ELECOM LTD are associated (or correlated) with XAAR PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XAAR PLC LS has no effect on the direction of ELECOM i.e., ELECOM and XAAR PLC go up and down completely randomly.

Pair Corralation between ELECOM and XAAR PLC

Assuming the 90 days horizon ELECOM is expected to generate 4.31 times less return on investment than XAAR PLC. But when comparing it to its historical volatility, ELECOM LTD is 2.03 times less risky than XAAR PLC. It trades about 0.07 of its potential returns per unit of risk. XAAR PLC LS 10 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  108.00  in XAAR PLC LS 10 on April 22, 2025 and sell it today you would earn a total of  31.00  from holding XAAR PLC LS 10 or generate 28.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

ELECOM LTD  vs.  XAAR PLC LS 10

ELECOM LTD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ELECOM LTD are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ELECOM may actually be approaching a critical reversion point that can send shares even higher in August 2025.

XAAR PLC LS

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in XAAR PLC LS 10 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, XAAR PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELECOM and XAAR PLC

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

The idea behind ELECOM LTD and XAAR PLC LS 10 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.