Correlation Between Eastern and Lancashire Holdings

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

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

Diversification Opportunities for Eastern and Lancashire Holdings

0.33

Correlation Coefficient

Eastern  Lancashire Holdings

Weak diversification

The 3 months correlation between Eastern and Lancashire is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Lancashire Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings and Eastern 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 Eastern Co are associated (or correlated) with Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of Eastern i.e., Eastern and Lancashire Holdings go up and down completely randomly.

Pair Corralation between Eastern and Lancashire Holdings

Considering the 90-day investment horizon Eastern Co is expected to generate 1.32 times more return on investment than Lancashire Holdings. However, Eastern is 1.32 times more volatile than Lancashire Holdings. It trades about 0.08 of its potential returns per unit of risk. Lancashire Holdings is currently generating about -0.27 per unit of risk. If you would invest  2,704  in Eastern Co on October 24, 2024 and sell it today you would earn a total of  66.00  from holding Eastern Co or generate 2.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Eastern Co  vs.  Lancashire Holdings

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Lancashire Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lancashire Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Eastern and Lancashire Holdings

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

The idea behind Eastern Co and Lancashire Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.