Correlation Between Elite Material and Gold Circuit

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

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

Diversification Opportunities for Elite Material and Gold Circuit

0.65

Correlation Coefficient

Elite Material  Gold Circuit

Poor diversification

The 3 months correlation between Elite and Gold is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and Gold Circuit Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Circuit Electronics and Elite Material 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 Elite Material Co are associated (or correlated) with Gold Circuit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Circuit Electronics has no effect on the direction of Elite Material i.e., Elite Material and Gold Circuit go up and down completely randomly.

Pair Corralation between Elite Material and Gold Circuit

Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.0 times more return on investment than Gold Circuit. However, Elite Material is 1.0 times more volatile than Gold Circuit Electronics. It trades about 0.1 of its potential returns per unit of risk. Gold Circuit Electronics is currently generating about 0.08 per unit of risk. If you would invest  17,450  in Elite Material Co on September 16, 2024 and sell it today you would earn a total of  42,450  from holding Elite Material Co or generate 243.27% return on investment over 90 days.

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

Elite Material Co  vs.  Gold Circuit Electronics

Elite Material

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Material Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Elite Material showed solid returns over the last few months and may actually be approaching a breakup point.

Gold Circuit Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Circuit Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Gold Circuit showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elite Material and Gold Circuit

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

The idea behind Elite Material Co and Gold Circuit Electronics 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.