Correlation Between Embassy Office and Steelcast

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

Diversification Opportunities for Embassy Office and Steelcast

0.36

Correlation Coefficient

Embassy Office  Steelcast

Weak diversification

The 3 months correlation between Embassy and Steelcast is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Embassy Office Parks and Steelcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steelcast 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 Steelcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steelcast Limited has no effect on the direction of Embassy Office i.e., Embassy Office and Steelcast go up and down completely randomly.

Pair Corralation between Embassy Office and Steelcast

Assuming the 90 days trading horizon Embassy Office Parks is expected to under-perform the Steelcast. But the stock apears to be less risky and, when comparing its historical volatility, Embassy Office Parks is 2.16 times less risky than Steelcast. The stock trades about -0.05 of its potential returns per unit of risk. The Steelcast Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  79,981  in Steelcast Limited on November 28, 2024 and sell it today you would earn a total of  2,229  from holding Steelcast Limited or generate 2.79% return on investment over 90 days.

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

Embassy Office Parks  vs.  Steelcast 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Steelcast Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Steelcast Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Steelcast is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Embassy Office and Steelcast

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

The idea behind Embassy Office Parks and Steelcast 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.