Correlation Between Embassy Office and Allied Blenders

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

By analyzing existing cross correlation between Embassy Office Parks and Allied Blenders Distillers, you can compare the effects of market volatilities on Embassy Office and Allied Blenders 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 Embassy Office with a short position of Allied Blenders. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embassy Office and Allied Blenders.

Diversification Opportunities for Embassy Office and Allied Blenders

-0.59

Correlation Coefficient

Embassy Office  Allied Blenders

Excellent diversification

The 3 months correlation between Embassy and Allied is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Embassy Office Parks and Allied Blenders Distillers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Blenders Dist and Embassy Office 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 Embassy Office Parks are associated (or correlated) with Allied Blenders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Blenders Dist has no effect on the direction of Embassy Office i.e., Embassy Office and Allied Blenders go up and down completely randomly.

Pair Corralation between Embassy Office and Allied Blenders

Assuming the 90 days trading horizon Embassy Office Parks is expected to under-perform the Allied Blenders. But the stock apears to be less risky and, when comparing its historical volatility, Embassy Office Parks is 1.97 times less risky than Allied Blenders. The stock trades about -0.07 of its potential returns per unit of risk. The Allied Blenders Distillers is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  32,945  in Allied Blenders Distillers on October 10, 2024 and sell it today you would lose (1,305) from holding Allied Blenders Distillers or give up 3.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	53.33%
Values	Daily Returns

Embassy Office Parks  vs.  Allied Blenders Distillers

Embassy Office Parks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embassy Office Parks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Embassy Office is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Allied Blenders Dist

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allied Blenders Distillers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Allied Blenders is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Embassy Office and Allied Blenders

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

The idea behind Embassy Office Parks and Allied Blenders Distillers 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.