Correlation Between Echo Investment and Pepco Group

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

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

Diversification Opportunities for Echo Investment and Pepco Group

-0.3

Correlation Coefficient

Echo Investment  Pepco Group

Very good diversification

The 3 months correlation between Echo and Pepco is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Echo Investment SA and Pepco Group BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepco Group BV and Echo Investment 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 Echo Investment SA are associated (or correlated) with Pepco Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepco Group BV has no effect on the direction of Echo Investment i.e., Echo Investment and Pepco Group go up and down completely randomly.

Pair Corralation between Echo Investment and Pepco Group

Assuming the 90 days trading horizon Echo Investment SA is expected to generate 0.91 times more return on investment than Pepco Group. However, Echo Investment SA is 1.09 times less risky than Pepco Group. It trades about 0.04 of its potential returns per unit of risk. Pepco Group BV is currently generating about -0.08 per unit of risk. If you would invest  423.00  in Echo Investment SA on September 3, 2024 and sell it today you would earn a total of  13.00  from holding Echo Investment SA or generate 3.07% return on investment over 90 days.

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

Echo Investment SA  vs.  Pepco Group BV

Echo Investment SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Echo Investment SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Echo Investment is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pepco Group BV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pepco Group BV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Echo Investment and Pepco Group

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

The idea behind Echo Investment SA and Pepco Group BV 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.