Correlation Between Ebro Foods and Xaar Plc

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

By analyzing existing cross correlation between Ebro Foods and Xaar plc, you can compare the effects of market volatilities on Ebro Foods 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 Ebro Foods with a short position of Xaar Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ebro Foods and Xaar Plc.

Diversification Opportunities for Ebro Foods and Xaar Plc

0.66

Correlation Coefficient

Ebro Foods  Xaar Plc

Poor diversification

The 3 months correlation between Ebro and Xaar is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods and Xaar plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xaar plc and Ebro Foods 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 Ebro Foods 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 has no effect on the direction of Ebro Foods i.e., Ebro Foods and Xaar Plc go up and down completely randomly.

Pair Corralation between Ebro Foods and Xaar Plc

Assuming the 90 days trading horizon Ebro Foods is expected to generate 0.23 times more return on investment than Xaar Plc. However, Ebro Foods is 4.3 times less risky than Xaar Plc. It trades about 0.03 of its potential returns per unit of risk. Xaar plc is currently generating about -0.02 per unit of risk. If you would invest  1,503  in Ebro Foods on October 26, 2024 and sell it today you would earn a total of  101.00  from holding Ebro Foods or generate 6.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.63%
Values	Daily Returns

Ebro Foods  vs.  Xaar plc

Ebro Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebro Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ebro Foods is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Xaar plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xaar plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Xaar Plc is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ebro Foods and Xaar Plc

The main advantage of trading using opposite Ebro Foods and Xaar Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ebro Foods 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 Ebro Foods and Xaar plc 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.