Correlation Between Eastern Communications and UE Furniture

Can any of the company-specific risk be diversified away by investing in both Eastern Communications and UE 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 Eastern Communications and UE Furniture 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 UE Furniture Co, you can compare the effects of market volatilities on Eastern Communications and UE 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 Eastern Communications with a short position of UE Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Communications and UE Furniture.

Diversification Opportunities for Eastern Communications and UE Furniture

0.75

Correlation Coefficient

Eastern Communications  UE Furniture

Poor diversification

The 3 months correlation between Eastern and 603600 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Communications Co and UE Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UE Furniture 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 UE Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UE Furniture has no effect on the direction of Eastern Communications i.e., Eastern Communications and UE Furniture go up and down completely randomly.

Pair Corralation between Eastern Communications and UE Furniture

Assuming the 90 days trading horizon Eastern Communications Co is expected to generate 1.13 times more return on investment than UE Furniture. However, Eastern Communications is 1.13 times more volatile than UE Furniture Co. It trades about 0.08 of its potential returns per unit of risk. UE Furniture Co is currently generating about 0.03 per unit of risk. If you would invest  38.00  in Eastern Communications Co on September 30, 2024 and sell it today you would earn a total of  4.00  from holding Eastern Communications Co or generate 10.53% return on investment over 90 days.

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

Eastern Communications Co  vs.  UE Furniture Co

Eastern Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Communications Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UE Furniture

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UE Furniture Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, UE Furniture 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 UE Furniture

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

The idea behind Eastern Communications Co and UE Furniture 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.