Correlation Between Enhanced and Goldman Sachs

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

By analyzing existing cross correlation between Enhanced Large Pany and Goldman Sachs Equity, you can compare the effects of market volatilities on Enhanced and Goldman Sachs 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 Enhanced with a short position of Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enhanced and Goldman Sachs.

Diversification Opportunities for Enhanced and Goldman Sachs

1.0

Correlation Coefficient

Enhanced  Goldman Sachs

No risk reduction

The 3 months correlation between Enhanced and Goldman is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Large Pany and Goldman Sachs Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Equity and Enhanced 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 Enhanced Large Pany are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Equity has no effect on the direction of Enhanced i.e., Enhanced and Goldman Sachs go up and down completely randomly.

Pair Corralation between Enhanced and Goldman Sachs

Assuming the 90 days horizon Enhanced Large Pany is expected to under-perform the Goldman Sachs. In addition to that, Enhanced is 1.17 times more volatile than Goldman Sachs Equity. It trades about -0.08 of its total potential returns per unit of risk. Goldman Sachs Equity is currently generating about -0.07 per unit of volatility. If you would invest  1,715  in Goldman Sachs Equity on December 21, 2024 and sell it today you would lose (67.00) from holding Goldman Sachs Equity or give up 3.91% of portfolio value over 90 days.

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

Enhanced Large Pany  vs.  Goldman Sachs Equity

Enhanced Large Pany

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enhanced Large Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Goldman Sachs Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Goldman Sachs Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Goldman Sachs is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Enhanced and Goldman Sachs

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

The idea behind Enhanced Large Pany and Goldman Sachs Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.