Correlation Between Western Securities and Eastern Air

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

By analyzing existing cross correlation between Western Securities Co and Eastern Air Logistics, you can compare the effects of market volatilities on Western Securities and Eastern Air 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 Western Securities with a short position of Eastern Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Securities and Eastern Air.

Diversification Opportunities for Western Securities and Eastern Air

0.59

Correlation Coefficient

Western Securities  Eastern Air

Very weak diversification

The 3 months correlation between Western and Eastern is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Western Securities Co and Eastern Air Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Air Logistics and Western Securities 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 Western Securities Co are associated (or correlated) with Eastern Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Air Logistics has no effect on the direction of Western Securities i.e., Western Securities and Eastern Air go up and down completely randomly.

Pair Corralation between Western Securities and Eastern Air

Assuming the 90 days trading horizon Western Securities Co is expected to under-perform the Eastern Air. In addition to that, Western Securities is 1.41 times more volatile than Eastern Air Logistics. It trades about -0.04 of its total potential returns per unit of risk. Eastern Air Logistics is currently generating about 0.05 per unit of volatility. If you would invest  1,651  in Eastern Air Logistics on September 20, 2024 and sell it today you would earn a total of  27.00  from holding Eastern Air Logistics or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Western Securities Co  vs.  Eastern Air Logistics

Western Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastern Air Logistics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Air Logistics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Securities and Eastern Air

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

The idea behind Western Securities Co and Eastern Air Logistics 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..