Correlation Between Elite Material and Roo Hsing

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Can any of the company-specific risk be diversified away by investing in both Elite Material and Roo Hsing 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 Roo Hsing 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 Roo Hsing Co, you can compare the effects of market volatilities on Elite Material and Roo Hsing 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 Roo Hsing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Material and Roo Hsing.

Diversification Opportunities for Elite Material and Roo Hsing

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Elite and Roo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and Roo Hsing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roo Hsing 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 Roo Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roo Hsing has no effect on the direction of Elite Material i.e., Elite Material and Roo Hsing go up and down completely randomly.

Pair Corralation between Elite Material and Roo Hsing

Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.85 times more return on investment than Roo Hsing. However, Elite Material is 1.85 times more volatile than Roo Hsing Co. It trades about 0.22 of its potential returns per unit of risk. Roo Hsing Co is currently generating about 0.06 per unit of risk. If you would invest  44,400  in Elite Material Co on October 23, 2024 and sell it today you would earn a total of  15,900  from holding Elite Material Co or generate 35.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.44%
ValuesDaily Returns

Elite Material Co  vs.  Roo Hsing Co

 Performance 
       Timeline  
Elite Material 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Elite Material Co are ranked lower than 16 (%) 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.
Roo Hsing 

Risk-Adjusted Performance

4 of 100

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

Elite Material and Roo Hsing Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Elite Material and Roo Hsing

The main advantage of trading using opposite Elite Material and Roo Hsing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elite Material position performs unexpectedly, Roo Hsing 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 Roo Hsing will offset losses from the drop in Roo Hsing's long position.
The idea behind Elite Material Co and Roo Hsing 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.
Check out your portfolio center.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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