Correlation Between Electronic City and Natura City

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

By analyzing existing cross correlation between Electronic City Indonesia and Natura City Developments, you can compare the effects of market volatilities on Electronic City and Natura City 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 Electronic City with a short position of Natura City. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic City and Natura City.

Diversification Opportunities for Electronic City and Natura City

0.7

Correlation Coefficient

Electronic City  Natura City

Poor diversification

The 3 months correlation between Electronic and Natura is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Electronic City Indonesia and Natura City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natura City Developments and Electronic City 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 Electronic City Indonesia are associated (or correlated) with Natura City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natura City Developments has no effect on the direction of Electronic City i.e., Electronic City and Natura City go up and down completely randomly.

Pair Corralation between Electronic City and Natura City

Assuming the 90 days trading horizon Electronic City Indonesia is expected to generate 1.7 times more return on investment than Natura City. However, Electronic City is 1.7 times more volatile than Natura City Developments. It trades about -0.07 of its potential returns per unit of risk. Natura City Developments is currently generating about -0.14 per unit of risk. If you would invest  29,400  in Electronic City Indonesia on December 4, 2024 and sell it today you would lose (11,900) from holding Electronic City Indonesia or give up 40.48% of portfolio value over 90 days.

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

Electronic City Indonesia  vs.  Natura City Developments

Electronic City Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electronic City Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Natura City Developments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natura City Developments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Electronic City and Natura City

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

The idea behind Electronic City Indonesia and Natura City Developments 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.