Correlation Between Evergreen Steel and Solar Applied

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

By analyzing existing cross correlation between Evergreen Steel Corp and Solar Applied Materials, you can compare the effects of market volatilities on Evergreen Steel and Solar Applied 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 Evergreen Steel with a short position of Solar Applied. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evergreen Steel and Solar Applied.

Diversification Opportunities for Evergreen Steel and Solar Applied

0.47

Correlation Coefficient

Evergreen Steel  Solar Applied

Very weak diversification

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

Pair Corralation between Evergreen Steel and Solar Applied

Assuming the 90 days trading horizon Evergreen Steel is expected to generate 1.11 times less return on investment than Solar Applied. But when comparing it to its historical volatility, Evergreen Steel Corp is 1.33 times less risky than Solar Applied. It trades about 0.24 of its potential returns per unit of risk. Solar Applied Materials is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,880  in Solar Applied Materials on December 5, 2024 and sell it today you would earn a total of  410.00  from holding Solar Applied Materials or generate 6.97% return on investment over 90 days.

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

Evergreen Steel Corp  vs.  Solar Applied Materials

Evergreen Steel Corp

Risk-Adjusted Performance

Very Weak

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

Solar Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Solar Applied 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 Evergreen Steel and Solar Applied

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

The idea behind Evergreen Steel Corp and Solar Applied Materials 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 Valuation module to check real value of public entities based on technical and fundamental data.