Correlation Between E L and Wajax

Can any of the company-specific risk be diversified away by investing in both E L and Wajax 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 Wajax 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 Wajax, you can compare the effects of market volatilities on E L and Wajax 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 Wajax. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and Wajax.

Diversification Opportunities for E L and Wajax

-0.33

Correlation Coefficient

E L  Wajax

Very good diversification

The 3 months correlation between ELF and Wajax is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial Corp and Wajax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wajax 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 Wajax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wajax has no effect on the direction of E L i.e., E L and Wajax go up and down completely randomly.

Pair Corralation between E L and Wajax

Assuming the 90 days trading horizon E L Financial Corp is expected to generate 1.14 times more return on investment than Wajax. However, E L is 1.14 times more volatile than Wajax. It trades about 0.09 of its potential returns per unit of risk. Wajax is currently generating about -0.08 per unit of risk. If you would invest  118,581  in E L Financial Corp on December 28, 2024 and sell it today you would earn a total of  16,219  from holding E L Financial Corp or generate 13.68% return on investment over 90 days.

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

E L Financial Corp  vs.  Wajax

E L Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L displayed solid returns over the last few months and may actually be approaching a breakup point.

Wajax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wajax has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with E L and Wajax

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

The idea behind E L Financial Corp and Wajax 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.