Correlation Between Eastern Communications and Great-Sun Foods

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

By analyzing existing cross correlation between Eastern Communications Co and Great Sun Foods Co, you can compare the effects of market volatilities on Eastern Communications and Great-Sun Foods 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 Communications with a short position of Great-Sun Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Communications and Great-Sun Foods.

Diversification Opportunities for Eastern Communications and Great-Sun Foods

0.65

Correlation Coefficient

Eastern Communications  Great-Sun Foods

Poor diversification

The 3 months correlation between Eastern and Great-Sun is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Communications Co and Great Sun Foods Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Sun Foods and Eastern Communications 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 Communications Co are associated (or correlated) with Great-Sun Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Sun Foods has no effect on the direction of Eastern Communications i.e., Eastern Communications and Great-Sun Foods go up and down completely randomly.

Pair Corralation between Eastern Communications and Great-Sun Foods

Assuming the 90 days trading horizon Eastern Communications Co is expected to under-perform the Great-Sun Foods. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Communications Co is 1.58 times less risky than Great-Sun Foods. The stock trades about -0.03 of its potential returns per unit of risk. The Great Sun Foods Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  508.00  in Great Sun Foods Co on December 2, 2024 and sell it today you would lose (17.00) from holding Great Sun Foods Co or give up 3.35% of portfolio value over 90 days.

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

Eastern Communications Co  vs.  Great Sun Foods Co

Eastern Communications

Risk-Adjusted Performance

Very Weak

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

Great Sun Foods

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Eastern Communications and Great-Sun Foods

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

The idea behind Eastern Communications Co and Great Sun Foods 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.