Correlation Between Comp SA and Echo Investment

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

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

Diversification Opportunities for Comp SA and Echo Investment

0.68

Correlation Coefficient

Comp SA  Echo Investment

Poor diversification

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

Pair Corralation between Comp SA and Echo Investment

Assuming the 90 days trading horizon Comp SA is expected to generate 1.02 times more return on investment than Echo Investment. However, Comp SA is 1.02 times more volatile than Echo Investment SA. It trades about 0.21 of its potential returns per unit of risk. Echo Investment SA is currently generating about 0.07 per unit of risk. If you would invest  11,500  in Comp SA on October 6, 2024 and sell it today you would earn a total of  2,050  from holding Comp SA or generate 17.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.44%
Values	Daily Returns

Comp SA  vs.  Echo Investment SA

Comp SA

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comp SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Comp SA reported solid returns over the last few months and may actually be approaching a breakup point.

Echo Investment SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Echo Investment SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Echo Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Comp SA and Echo Investment

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

The idea behind Comp SA and Echo Investment SA 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.