Correlation Between Embassy Office and PI Industries

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

Diversification Opportunities for Embassy Office and PI Industries

0.61

Correlation Coefficient

Embassy Office  PI Industries

Poor diversification

The 3 months correlation between Embassy and PIIND is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Embassy Office Parks and PI Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PI Industries Limited 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 PI Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PI Industries Limited has no effect on the direction of Embassy Office i.e., Embassy Office and PI Industries go up and down completely randomly.

Pair Corralation between Embassy Office and PI Industries

Assuming the 90 days trading horizon Embassy Office Parks is expected to generate 0.63 times more return on investment than PI Industries. However, Embassy Office Parks is 1.59 times less risky than PI Industries. It trades about -0.01 of its potential returns per unit of risk. PI Industries Limited is currently generating about -0.05 per unit of risk. If you would invest  37,302  in Embassy Office Parks on December 27, 2024 and sell it today you would lose (351.00) from holding Embassy Office Parks or give up 0.94% of portfolio value over 90 days.

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

Embassy Office Parks  vs.  PI Industries Limited

Embassy Office Parks

Risk-Adjusted Performance

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 recent stock price disturbance, may contribute to short-term losses for the investors.

PI Industries Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days PI Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, PI Industries is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Embassy Office and PI Industries

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

The idea behind Embassy Office Parks and PI Industries Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.