Correlation Between East Africa and CompoSecure

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

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

Diversification Opportunities for East Africa and CompoSecure

0.0

Correlation Coefficient

East Africa  CompoSecure

Pay attention - limited upside

The 3 months correlation between East and CompoSecure is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure and East Africa 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 East Africa Metals are associated (or correlated) with CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of East Africa i.e., East Africa and CompoSecure go up and down completely randomly.

Pair Corralation between East Africa and CompoSecure

Assuming the 90 days horizon East Africa is expected to generate 1.22 times less return on investment than CompoSecure. But when comparing it to its historical volatility, East Africa Metals is 1.24 times less risky than CompoSecure. It trades about 0.09 of its potential returns per unit of risk. CompoSecure is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  115.00  in CompoSecure on October 24, 2024 and sell it today you would earn a total of  348.00  from holding CompoSecure or generate 302.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	88.53%
Values	Daily Returns

East Africa Metals  vs.  CompoSecure

East Africa Metals

Risk-Adjusted Performance

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Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, East Africa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CompoSecure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CompoSecure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CompoSecure is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with East Africa and CompoSecure

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

The idea behind East Africa Metals and CompoSecure 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.