Correlation Between Eastern Air and Masterwork Machinery

Can any of the company-specific risk be diversified away by investing in both Eastern Air and Masterwork Machinery 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 Eastern Air and Masterwork Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Air Logistics and Masterwork Machinery, you can compare the effects of market volatilities on Eastern Air and Masterwork Machinery 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 Eastern Air with a short position of Masterwork Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Air and Masterwork Machinery.

Diversification Opportunities for Eastern Air and Masterwork Machinery

-0.28

Correlation Coefficient

Eastern Air  Masterwork Machinery

Very good diversification

The 3 months correlation between Eastern and Masterwork is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Air Logistics and Masterwork Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masterwork Machinery and Eastern Air 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 Eastern Air Logistics are associated (or correlated) with Masterwork Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masterwork Machinery has no effect on the direction of Eastern Air i.e., Eastern Air and Masterwork Machinery go up and down completely randomly.

Pair Corralation between Eastern Air and Masterwork Machinery

Assuming the 90 days trading horizon Eastern Air Logistics is expected to generate 0.43 times more return on investment than Masterwork Machinery. However, Eastern Air Logistics is 2.32 times less risky than Masterwork Machinery. It trades about -0.03 of its potential returns per unit of risk. Masterwork Machinery is currently generating about -0.03 per unit of risk. If you would invest  1,740  in Eastern Air Logistics on October 8, 2024 and sell it today you would lose (84.00) from holding Eastern Air Logistics or give up 4.83% of portfolio value over 90 days.

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

Eastern Air Logistics  vs.  Masterwork Machinery

Eastern Air Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Air Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastern Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Masterwork Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masterwork Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Eastern Air and Masterwork Machinery

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

The idea behind Eastern Air Logistics and Masterwork Machinery 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..