Correlation Between Eastern and Techtronic Industries

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

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

Diversification Opportunities for Eastern and Techtronic Industries

0.78

Correlation Coefficient

Eastern  Techtronic Industries

Poor diversification

The 3 months correlation between Eastern and Techtronic is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Techtronic Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries 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 Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of Eastern i.e., Eastern and Techtronic Industries go up and down completely randomly.

Pair Corralation between Eastern and Techtronic Industries

Considering the 90-day investment horizon Eastern Co is expected to generate 1.13 times more return on investment than Techtronic Industries. However, Eastern is 1.13 times more volatile than Techtronic Industries Ltd. It trades about -0.06 of its potential returns per unit of risk. Techtronic Industries Ltd is currently generating about -0.07 per unit of risk. If you would invest  3,124  in Eastern Co on September 22, 2024 and sell it today you would lose (325.00) from holding Eastern Co or give up 10.4% of portfolio value over 90 days.

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

Eastern Co  vs.  Techtronic Industries Ltd

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 latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Techtronic Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Techtronic Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Eastern and Techtronic Industries

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

The idea behind Eastern Co and Techtronic Industries Ltd 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.