Correlation Between E Media and HomeChoice Investments

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

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

Diversification Opportunities for E Media and HomeChoice Investments

0.05

Correlation Coefficient

E Media  HomeChoice Investments

Significant diversification

The 3 months correlation between EMH and HomeChoice is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding E Media Holdings and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and E Media 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 Media Holdings are associated (or correlated) with HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of E Media i.e., E Media and HomeChoice Investments go up and down completely randomly.

Pair Corralation between E Media and HomeChoice Investments

Assuming the 90 days trading horizon E Media Holdings is expected to generate 0.81 times more return on investment than HomeChoice Investments. However, E Media Holdings is 1.24 times less risky than HomeChoice Investments. It trades about -0.03 of its potential returns per unit of risk. HomeChoice Investments is currently generating about -0.07 per unit of risk. If you would invest  37,500  in E Media Holdings on September 14, 2024 and sell it today you would lose (2,500) from holding E Media Holdings or give up 6.67% of portfolio value over 90 days.

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

E Media Holdings  vs.  HomeChoice Investments

E Media Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

HomeChoice Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeChoice Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with E Media and HomeChoice Investments

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

The idea behind E Media Holdings and HomeChoice Investments 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.