Correlation Between EEI Corp and Megawide Construction

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

By analyzing existing cross correlation between EEI Corp and Megawide Construction Corp, you can compare the effects of market volatilities on EEI Corp and Megawide Construction 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 EEI Corp with a short position of Megawide Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of EEI Corp and Megawide Construction.

Diversification Opportunities for EEI Corp and Megawide Construction

-0.53

Correlation Coefficient

EEI Corp  Megawide Construction

Excellent diversification

The 3 months correlation between EEI and Megawide is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding EEI Corp and Megawide Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megawide Construction and EEI Corp 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 EEI Corp are associated (or correlated) with Megawide Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megawide Construction has no effect on the direction of EEI Corp i.e., EEI Corp and Megawide Construction go up and down completely randomly.

Pair Corralation between EEI Corp and Megawide Construction

Assuming the 90 days trading horizon EEI Corp is expected to under-perform the Megawide Construction. In addition to that, EEI Corp is 1.21 times more volatile than Megawide Construction Corp. It trades about -0.24 of its total potential returns per unit of risk. Megawide Construction Corp is currently generating about 0.17 per unit of volatility. If you would invest  9,060  in Megawide Construction Corp on September 15, 2024 and sell it today you would earn a total of  730.00  from holding Megawide Construction Corp or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	47.69%
Values	Daily Returns

EEI Corp  vs.  Megawide Construction Corp

EEI Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EEI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Megawide Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Megawide Construction Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Megawide Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EEI Corp and Megawide Construction

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

The idea behind EEI Corp and Megawide Construction 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.