Correlation Between Elite Material and U Media

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

Diversification Opportunities for Elite Material and U Media

0.36

Correlation Coefficient

Elite Material  U Media

Weak diversification

The 3 months correlation between Elite and 6470 is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and U Media Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U Media Communications 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 U Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U Media Communications has no effect on the direction of Elite Material i.e., Elite Material and U Media go up and down completely randomly.

Pair Corralation between Elite Material and U Media

Assuming the 90 days trading horizon Elite Material Co is expected to generate 0.65 times more return on investment than U Media. However, Elite Material Co is 1.55 times less risky than U Media. It trades about 0.39 of its potential returns per unit of risk. U Media Communications is currently generating about 0.1 per unit of risk. If you would invest  48,200  in Elite Material Co on September 23, 2024 and sell it today you would earn a total of  11,400  from holding Elite Material Co or generate 23.65% return on investment over 90 days.

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

Elite Material Co  vs.  U Media Communications

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.

U Media Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in U Media Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, U Media may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Elite Material and U Media

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

The idea behind Elite Material Co and U Media Communications 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 Transaction History module to view history of all your transactions and understand their impact on performance.