Correlation Between Ecofin Global and Associated British

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

By analyzing existing cross correlation between Ecofin Global Utilities and Associated British Foods, you can compare the effects of market volatilities on Ecofin Global and Associated British 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 Ecofin Global with a short position of Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecofin Global and Associated British.

Diversification Opportunities for Ecofin Global and Associated British

0.05

Correlation Coefficient

Ecofin Global  Associated British

Significant diversification

The 3 months correlation between Ecofin and Associated is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ecofin Global Utilities and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and Ecofin Global 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 Ecofin Global Utilities are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Ecofin Global i.e., Ecofin Global and Associated British go up and down completely randomly.

Pair Corralation between Ecofin Global and Associated British

Assuming the 90 days trading horizon Ecofin Global Utilities is expected to generate 0.75 times more return on investment than Associated British. However, Ecofin Global Utilities is 1.33 times less risky than Associated British. It trades about 0.06 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.08 per unit of risk. If you would invest  18,004  in Ecofin Global Utilities on September 1, 2024 and sell it today you would earn a total of  1,296  from holding Ecofin Global Utilities or generate 7.2% return on investment over 90 days.

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

Ecofin Global Utilities  vs.  Associated British Foods

Ecofin Global Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecofin Global Utilities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ecofin Global is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Ecofin Global and Associated British

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

The idea behind Ecofin Global Utilities and Associated British Foods 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 Anywhere module to track or share privately all of your investments from the convenience of any device.