Correlation Between E L and Algoma Central

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

By analyzing existing cross correlation between E L Financial Corp and Algoma Central, you can compare the effects of market volatilities on E L and Algoma Central 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 Algoma Central. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and Algoma Central.

Diversification Opportunities for E L and Algoma Central

0.71

Correlation Coefficient

E L  Algoma Central

Poor diversification

The 3 months correlation between ELF and Algoma is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial Corp and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central 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 Corp are associated (or correlated) with Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of E L i.e., E L and Algoma Central go up and down completely randomly.

Pair Corralation between E L and Algoma Central

Assuming the 90 days trading horizon E L Financial Corp is expected to generate 2.69 times more return on investment than Algoma Central. However, E L is 2.69 times more volatile than Algoma Central. It trades about 0.07 of its potential returns per unit of risk. Algoma Central is currently generating about 0.08 per unit of risk. If you would invest  118,581  in E L Financial Corp on December 29, 2024 and sell it today you would earn a total of  13,013  from holding E L Financial Corp or generate 10.97% return on investment over 90 days.

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

E L Financial Corp  vs.  Algoma Central

E L Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Algoma Central

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Algoma Central 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 Algoma Central

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

The idea behind E L Financial Corp and Algoma Central 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..