Correlation Between Eternal Materials and Pan Asia

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

By analyzing existing cross correlation between Eternal Materials Co and Pan Asia Chemical, you can compare the effects of market volatilities on Eternal Materials and Pan Asia 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 Eternal Materials with a short position of Pan Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eternal Materials and Pan Asia.

Diversification Opportunities for Eternal Materials and Pan Asia

0.78

Correlation Coefficient

Eternal Materials  Pan Asia

Poor diversification

The 3 months correlation between Eternal and Pan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Materials Co and Pan Asia Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Chemical and Eternal Materials 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 Eternal Materials Co are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Chemical has no effect on the direction of Eternal Materials i.e., Eternal Materials and Pan Asia go up and down completely randomly.

Pair Corralation between Eternal Materials and Pan Asia

Assuming the 90 days trading horizon Eternal Materials is expected to generate 5.99 times less return on investment than Pan Asia. In addition to that, Eternal Materials is 1.94 times more volatile than Pan Asia Chemical. It trades about 0.05 of its total potential returns per unit of risk. Pan Asia Chemical is currently generating about 0.53 per unit of volatility. If you would invest  1,385  in Pan Asia Chemical on December 4, 2024 and sell it today you would earn a total of  65.00  from holding Pan Asia Chemical or generate 4.69% return on investment over 90 days.

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

Eternal Materials Co  vs.  Pan Asia Chemical

Eternal Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pan Asia Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pan Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Eternal Materials and Pan Asia

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

The idea behind Eternal Materials Co and Pan Asia Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.