Correlation Between ECD Automotive and PHINIA

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

By analyzing existing cross correlation between ECD Automotive Design and PHINIA Inc, you can compare the effects of market volatilities on ECD Automotive and PHINIA 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 ECD Automotive with a short position of PHINIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECD Automotive and PHINIA.

Diversification Opportunities for ECD Automotive and PHINIA

-0.6

Correlation Coefficient

ECD Automotive  PHINIA

Excellent diversification

The 3 months correlation between ECD and PHINIA is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and PHINIA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHINIA Inc and ECD Automotive 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 ECD Automotive Design are associated (or correlated) with PHINIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHINIA Inc has no effect on the direction of ECD Automotive i.e., ECD Automotive and PHINIA go up and down completely randomly.

Pair Corralation between ECD Automotive and PHINIA

Given the investment horizon of 90 days ECD Automotive Design is expected to under-perform the PHINIA. In addition to that, ECD Automotive is 3.51 times more volatile than PHINIA Inc. It trades about -0.06 of its total potential returns per unit of risk. PHINIA Inc is currently generating about 0.13 per unit of volatility. If you would invest  2,327  in PHINIA Inc on October 8, 2024 and sell it today you would earn a total of  2,508  from holding PHINIA Inc or generate 107.78% return on investment over 90 days.

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

ECD Automotive Design  vs.  PHINIA Inc

ECD Automotive Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, ECD Automotive is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

PHINIA Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PHINIA Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, PHINIA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ECD Automotive and PHINIA

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

The idea behind ECD Automotive Design and PHINIA Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.