Correlation Between ECHO INVESTMENT and DFS Furniture

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

By analyzing existing cross correlation between ECHO INVESTMENT ZY and DFS Furniture PLC, you can compare the effects of market volatilities on ECHO INVESTMENT and DFS Furniture 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 ECHO INVESTMENT with a short position of DFS Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECHO INVESTMENT and DFS Furniture.

Diversification Opportunities for ECHO INVESTMENT and DFS Furniture

0.17

Correlation Coefficient

ECHO INVESTMENT  DFS Furniture

Average diversification

The 3 months correlation between ECHO and DFS is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding ECHO INVESTMENT ZY and DFS Furniture PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFS Furniture PLC and ECHO INVESTMENT 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 ECHO INVESTMENT ZY are associated (or correlated) with DFS Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFS Furniture PLC has no effect on the direction of ECHO INVESTMENT i.e., ECHO INVESTMENT and DFS Furniture go up and down completely randomly.

Pair Corralation between ECHO INVESTMENT and DFS Furniture

Assuming the 90 days horizon ECHO INVESTMENT ZY is expected to generate 0.57 times more return on investment than DFS Furniture. However, ECHO INVESTMENT ZY is 1.74 times less risky than DFS Furniture. It trades about -0.04 of its potential returns per unit of risk. DFS Furniture PLC is currently generating about -0.07 per unit of risk. If you would invest  106.00  in ECHO INVESTMENT ZY on December 28, 2024 and sell it today you would lose (5.00) from holding ECHO INVESTMENT ZY or give up 4.72% of portfolio value over 90 days.

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

ECHO INVESTMENT ZY  vs.  DFS Furniture PLC

ECHO INVESTMENT ZY

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECHO INVESTMENT ZY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ECHO INVESTMENT is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

DFS Furniture PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days DFS Furniture PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with ECHO INVESTMENT and DFS Furniture

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

The idea behind ECHO INVESTMENT ZY and DFS Furniture PLC 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.