Correlation Between Elco and Terminal X

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

By analyzing existing cross correlation between Elco and Terminal X Online, you can compare the effects of market volatilities on Elco and Terminal X 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 Terminal X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elco and Terminal X.

Diversification Opportunities for Elco and Terminal X

0.96

Correlation Coefficient

Elco  Terminal X

Almost no diversification

The 3 months correlation between Elco and Terminal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Elco and Terminal X Online in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terminal X Online 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 Terminal X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terminal X Online has no effect on the direction of Elco i.e., Elco and Terminal X go up and down completely randomly.

Pair Corralation between Elco and Terminal X

Assuming the 90 days trading horizon Elco is expected to generate 1.54 times more return on investment than Terminal X. However, Elco is 1.54 times more volatile than Terminal X Online. It trades about 0.13 of its potential returns per unit of risk. Terminal X Online is currently generating about 0.08 per unit of risk. If you would invest  1,534,000  in Elco on November 2, 2024 and sell it today you would earn a total of  72,000  from holding Elco or generate 4.69% return on investment over 90 days.

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

Elco  vs.  Terminal X Online

Elco

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Elco are ranked lower than 27 (%) 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.

Terminal X Online

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Terminal X Online are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Terminal X sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elco and Terminal X

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

The idea behind Elco and Terminal X Online 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.