Correlation Between Aran Research and Elco

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

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

Diversification Opportunities for Aran Research and Elco

-0.25

Correlation Coefficient

Aran Research  Elco

Very good diversification

The 3 months correlation between Aran and Elco is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Aran Research and and Elco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elco and Aran Research 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 Aran Research and are associated (or correlated) with Elco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elco has no effect on the direction of Aran Research i.e., Aran Research and Elco go up and down completely randomly.

Pair Corralation between Aran Research and Elco

Assuming the 90 days trading horizon Aran Research and is expected to under-perform the Elco. In addition to that, Aran Research is 1.16 times more volatile than Elco. It trades about -0.03 of its total potential returns per unit of risk. Elco is currently generating about -0.02 per unit of volatility. If you would invest  1,465,000  in Elco on December 28, 2024 and sell it today you would lose (42,000) from holding Elco or give up 2.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.08%
Values	Daily Returns

Aran Research and  vs.  Elco

Aran Research

Risk-Adjusted Performance

Very Weak

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

Elco

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Aran Research and Elco

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

The idea behind Aran Research and and Elco 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.