Correlation Between CECO Environmental and Legacy Education

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

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

Diversification Opportunities for CECO Environmental and Legacy Education

0.77

Correlation Coefficient

CECO Environmental  Legacy Education

Poor diversification

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

Pair Corralation between CECO Environmental and Legacy Education

Given the investment horizon of 90 days CECO Environmental is expected to generate 1.34 times less return on investment than Legacy Education. But when comparing it to its historical volatility, CECO Environmental Corp is 1.7 times less risky than Legacy Education. It trades about 0.07 of its potential returns per unit of risk. Legacy Education is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  850.00  in Legacy Education on October 22, 2024 and sell it today you would earn a total of  23.00  from holding Legacy Education or generate 2.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

CECO Environmental Corp  vs.  Legacy Education

CECO Environmental Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Legacy Education

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Education are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Legacy Education showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CECO Environmental and Legacy Education

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

The idea behind CECO Environmental Corp and Legacy Education 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.