Correlation Between EMC2 and SLS

Can any of the company-specific risk be diversified away by investing in both EMC2 and SLS 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 EMC2 and SLS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EMC2 and SLS, you can compare the effects of market volatilities on EMC2 and SLS 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 EMC2 with a short position of SLS. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMC2 and SLS.

Diversification Opportunities for EMC2 and SLS

0.99

Correlation Coefficient

EMC2  SLS

No risk reduction

The 3 months correlation between EMC2 and SLS is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding EMC2 and SLS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLS and EMC2 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 EMC2 are associated (or correlated) with SLS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLS has no effect on the direction of EMC2 i.e., EMC2 and SLS go up and down completely randomly.

Pair Corralation between EMC2 and SLS

Assuming the 90 days trading horizon EMC2 is expected to generate 1.14 times more return on investment than SLS. However, EMC2 is 1.14 times more volatile than SLS. It trades about 0.03 of its potential returns per unit of risk. SLS is currently generating about -0.03 per unit of risk. If you would invest  0.05  in EMC2 on December 28, 2024 and sell it today you would earn a total of  0.00  from holding EMC2 or generate 2.78% return on investment over 90 days.

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

EMC2  vs.  SLS

EMC2

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EMC2 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, EMC2 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SLS

Risk-Adjusted Performance

Very Weak

Over the last 90 days SLS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SLS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with EMC2 and SLS

The main advantage of trading using opposite EMC2 and SLS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMC2 position performs unexpectedly, SLS 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 SLS will offset losses from the drop in SLS's long position.

The idea behind EMC2 and SLS 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.