Correlation Between Continental and Educational Development

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

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

Diversification Opportunities for Continental and Educational Development

0.77

Correlation Coefficient

Continental  Educational Development

Poor diversification

The 3 months correlation between Continental and Educational is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Caleres and Educational Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Educational Development and Continental 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 Caleres are associated (or correlated) with Educational Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Educational Development has no effect on the direction of Continental i.e., Continental and Educational Development go up and down completely randomly.

Pair Corralation between Continental and Educational Development

Considering the 90-day investment horizon Caleres is expected to generate 1.54 times more return on investment than Educational Development. However, Continental is 1.54 times more volatile than Educational Development. It trades about -0.13 of its potential returns per unit of risk. Educational Development is currently generating about -0.2 per unit of risk. If you would invest  3,279  in Caleres on October 1, 2024 and sell it today you would lose (935.00) from holding Caleres or give up 28.51% of portfolio value over 90 days.

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

Caleres  vs.  Educational Development

Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Educational Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Educational Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Continental and Educational Development

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

The idea behind Caleres and Educational Development 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.