Correlation Between Better World and East Resources

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

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

Diversification Opportunities for Better World and East Resources

0.68

Correlation Coefficient

Better World  East Resources

Poor diversification

The 3 months correlation between Better and East is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Better World Acquisition and East Resources Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Resources Acqui and Better World 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 Better World Acquisition are associated (or correlated) with East Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Resources Acqui has no effect on the direction of Better World i.e., Better World and East Resources go up and down completely randomly.

Pair Corralation between Better World and East Resources

Given the investment horizon of 90 days Better World is expected to generate 41.66 times less return on investment than East Resources. But when comparing it to its historical volatility, Better World Acquisition is 89.49 times less risky than East Resources. It trades about 0.2 of its potential returns per unit of risk. East Resources Acquisition is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  18.00  in East Resources Acquisition on September 20, 2024 and sell it today you would earn a total of  10.00  from holding East Resources Acquisition or generate 55.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.67%
Values	Daily Returns

Better World Acquisition  vs.  East Resources Acquisition

Better World Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Better World Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Better World is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

East Resources Acqui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Resources Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, East Resources is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Better World and East Resources

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

The idea behind Better World Acquisition and East Resources Acquisition 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.