Correlation Between XAAR PLC and Eurotech SpA

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

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

Diversification Opportunities for XAAR PLC and Eurotech SpA

0.47

Correlation Coefficient

XAAR PLC  Eurotech SpA

Very weak diversification

The 3 months correlation between XAAR and Eurotech is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding XAAR PLC LS 10 and Eurotech SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eurotech SpA and XAAR PLC 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 XAAR PLC LS 10 are associated (or correlated) with Eurotech SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eurotech SpA has no effect on the direction of XAAR PLC i.e., XAAR PLC and Eurotech SpA go up and down completely randomly.

Pair Corralation between XAAR PLC and Eurotech SpA

Assuming the 90 days horizon XAAR PLC is expected to generate 1.23 times less return on investment than Eurotech SpA. In addition to that, XAAR PLC is 1.04 times more volatile than Eurotech SpA. It trades about 0.15 of its total potential returns per unit of risk. Eurotech SpA is currently generating about 0.19 per unit of volatility. If you would invest  64.00  in Eurotech SpA on April 22, 2025 and sell it today you would earn a total of  24.00  from holding Eurotech SpA or generate 37.5% return on investment over 90 days.

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

XAAR PLC LS 10  vs.  Eurotech SpA

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.

Eurotech SpA

Risk-Adjusted Performance

Good

Over the last 90 days Eurotech SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Eurotech SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with XAAR PLC and Eurotech SpA

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

The idea behind XAAR PLC LS 10 and Eurotech SpA 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.