Correlation Between E M and Commercial Credit

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

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

Diversification Opportunities for E M and Commercial Credit

0.56

Correlation Coefficient

E M  Commercial Credit

Very weak diversification

The 3 months correlation between EMLN0000 and Commercial is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Commercial Credit and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Credit and E M 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 M L are associated (or correlated) with Commercial Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Credit has no effect on the direction of E M i.e., E M and Commercial Credit go up and down completely randomly.

Pair Corralation between E M and Commercial Credit

Assuming the 90 days trading horizon E M L is expected to under-perform the Commercial Credit. In addition to that, E M is 1.41 times more volatile than Commercial Credit and. It trades about -0.07 of its total potential returns per unit of risk. Commercial Credit and is currently generating about -0.03 per unit of volatility. If you would invest  5,660  in Commercial Credit and on December 29, 2024 and sell it today you would lose (260.00) from holding Commercial Credit and or give up 4.59% of portfolio value over 90 days.

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

E M L  vs.  Commercial Credit and

E M L

Risk-Adjusted Performance

Very Weak

Over the last 90 days E M L 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 basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Commercial Credit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Credit and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Commercial Credit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with E M and Commercial Credit

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

The idea behind E M L and Commercial Credit and 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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.