Correlation Between Design and Elentec

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

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

Diversification Opportunities for Design and Elentec

0.45

Correlation Coefficient

Design  Elentec

Very weak diversification

The 3 months correlation between Design and Elentec is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Design Co and Elentec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elentec and Design 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 Design Co are associated (or correlated) with Elentec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elentec has no effect on the direction of Design i.e., Design and Elentec go up and down completely randomly.

Pair Corralation between Design and Elentec

Assuming the 90 days trading horizon Design Co is expected to under-perform the Elentec. In addition to that, Design is 2.34 times more volatile than Elentec Co. It trades about -0.15 of its total potential returns per unit of risk. Elentec Co is currently generating about -0.07 per unit of volatility. If you would invest  607,000  in Elentec Co on October 10, 2024 and sell it today you would lose (87,000) from holding Elentec Co or give up 14.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.94%
Values	Daily Returns

Design Co  vs.  Elentec Co

Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Design Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Elentec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elentec Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Design and Elentec

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

The idea behind Design Co and Elentec Co 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.