Correlation Between Eastern and Toro

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

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

Diversification Opportunities for Eastern and Toro

-0.02

Correlation Coefficient

Eastern  Toro

Good diversification

The 3 months correlation between Eastern and Toro is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of Eastern i.e., Eastern and Toro go up and down completely randomly.

Pair Corralation between Eastern and Toro

Considering the 90-day investment horizon Eastern Co is expected to generate 1.21 times more return on investment than Toro. However, Eastern is 1.21 times more volatile than Toro Co. It trades about -0.01 of its potential returns per unit of risk. Toro Co is currently generating about -0.03 per unit of risk. If you would invest  2,971  in Eastern Co on August 31, 2024 and sell it today you would lose (99.00) from holding Eastern Co or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Eastern Co  vs.  Toro Co

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 quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eastern and Toro

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

The idea behind Eastern Co and Toro Co 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..