Correlation Between Elco and Aran Research

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

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

Diversification Opportunities for Elco and Aran Research

0.38

Correlation Coefficient

Elco  Aran Research

Weak diversification

The 3 months correlation between Elco and Aran is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Elco and Aran Research and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aran Research and Elco 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 Elco are associated (or correlated) with Aran Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aran Research has no effect on the direction of Elco i.e., Elco and Aran Research go up and down completely randomly.

Pair Corralation between Elco and Aran Research

Assuming the 90 days trading horizon Elco is expected to generate 1.08 times more return on investment than Aran Research. However, Elco is 1.08 times more volatile than Aran Research and. It trades about 0.38 of its potential returns per unit of risk. Aran Research and is currently generating about 0.06 per unit of risk. If you would invest  1,058,000  in Elco on September 15, 2024 and sell it today you would earn a total of  448,000  from holding Elco or generate 42.34% return on investment over 90 days.

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

Elco  vs.  Aran Research and

Elco

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Elco are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elco sustained solid returns over the last few months and may actually be approaching a breakup point.

Aran Research

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aran Research and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aran Research may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Elco and Aran Research

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

The idea behind Elco and Aran Research and 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.