Correlation Between E L and Finning International

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

By analyzing existing cross correlation between E L Financial 3 and Finning International, you can compare the effects of market volatilities on E L and Finning International 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 E L with a short position of Finning International. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and Finning International.

Diversification Opportunities for E L and Finning International

0.86

Correlation Coefficient

E L  Finning International

Very poor diversification

The 3 months correlation between ELF-PH and Finning is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial 3 and Finning International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finning International and E L 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 E L Financial 3 are associated (or correlated) with Finning International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finning International has no effect on the direction of E L i.e., E L and Finning International go up and down completely randomly.

Pair Corralation between E L and Finning International

Assuming the 90 days trading horizon E L Financial 3 is expected to under-perform the Finning International. But the preferred stock apears to be less risky and, when comparing its historical volatility, E L Financial 3 is 3.72 times less risky than Finning International. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Finning International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,775  in Finning International on September 5, 2024 and sell it today you would earn a total of  122.00  from holding Finning International or generate 3.23% return on investment over 90 days.

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

E L Financial 3  vs.  Finning International

E L Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E L Financial 3 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, E L is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Finning International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Finning International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Finning International is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with E L and Finning International

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

The idea behind E L Financial 3 and Finning International 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..