Correlation Between ECD Automotive and Vicinity

Can any of the company-specific risk be diversified away by investing in both ECD Automotive and Vicinity 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 Vicinity 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 Vicinity Motor Corp, you can compare the effects of market volatilities on ECD Automotive and Vicinity 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 Vicinity. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECD Automotive and Vicinity.

Diversification Opportunities for ECD Automotive and Vicinity

0.78

Correlation Coefficient

ECD Automotive  Vicinity

Poor diversification

The 3 months correlation between ECD and Vicinity is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and Vicinity Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vicinity Motor Corp 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 Vicinity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vicinity Motor Corp has no effect on the direction of ECD Automotive i.e., ECD Automotive and Vicinity go up and down completely randomly.

Pair Corralation between ECD Automotive and Vicinity

Given the investment horizon of 90 days ECD Automotive Design is expected to generate 0.18 times more return on investment than Vicinity. However, ECD Automotive Design is 5.54 times less risky than Vicinity. It trades about -0.03 of its potential returns per unit of risk. Vicinity Motor Corp is currently generating about -0.2 per unit of risk. If you would invest  111.00  in ECD Automotive Design on September 12, 2024 and sell it today you would lose (11.00) from holding ECD Automotive Design or give up 9.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

ECD Automotive Design  vs.  Vicinity Motor Corp

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.

Vicinity Motor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vicinity Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with ECD Automotive and Vicinity

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

The idea behind ECD Automotive Design and Vicinity Motor Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.