Correlation Between World Energy and Eagle Small

Can any of the company-specific risk be diversified away by investing in both World Energy and Eagle Small 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 World Energy and Eagle Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between World Energy Fund and Eagle Small Cap, you can compare the effects of market volatilities on World Energy and Eagle Small 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 World Energy with a short position of Eagle Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Eagle Small.

Diversification Opportunities for World Energy and Eagle Small

0.26

Correlation Coefficient

World Energy  Eagle Small

Modest diversification

The 3 months correlation between World and Eagle is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Eagle Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Small Cap and World Energy 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 World Energy Fund are associated (or correlated) with Eagle Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Small Cap has no effect on the direction of World Energy i.e., World Energy and Eagle Small go up and down completely randomly.

Pair Corralation between World Energy and Eagle Small

Assuming the 90 days horizon World Energy Fund is expected to generate 1.24 times more return on investment than Eagle Small. However, World Energy is 1.24 times more volatile than Eagle Small Cap. It trades about 0.02 of its potential returns per unit of risk. Eagle Small Cap is currently generating about -0.08 per unit of risk. If you would invest  1,449  in World Energy Fund on December 28, 2024 and sell it today you would earn a total of  14.00  from holding World Energy Fund or generate 0.97% return on investment over 90 days.

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

World Energy Fund  vs.  Eagle Small Cap

World Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, World Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eagle Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eagle Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with World Energy and Eagle Small

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

The idea behind World Energy Fund and Eagle Small Cap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.