Correlation Between Elite Material and ITEQ Corp

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

Diversification Opportunities for Elite Material and ITEQ Corp

-0.05

Correlation Coefficient

Elite Material  ITEQ Corp

Good diversification

The 3 months correlation between Elite and ITEQ is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and ITEQ Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITEQ Corp 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 ITEQ Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITEQ Corp has no effect on the direction of Elite Material i.e., Elite Material and ITEQ Corp go up and down completely randomly.

Pair Corralation between Elite Material and ITEQ Corp

Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.09 times more return on investment than ITEQ Corp. However, Elite Material is 1.09 times more volatile than ITEQ Corp. It trades about 0.05 of its potential returns per unit of risk. ITEQ Corp is currently generating about 0.01 per unit of risk. If you would invest  40,600  in Elite Material Co on December 5, 2024 and sell it today you would earn a total of  19,800  from holding Elite Material Co or generate 48.77% return on investment over 90 days.

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

Elite Material Co  vs.  ITEQ Corp

Elite Material

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Material Co are ranked lower than 7 (%) 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.

ITEQ Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITEQ Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Elite Material and ITEQ Corp

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

The idea behind Elite Material Co and ITEQ Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.