Correlation Between E M and HVA Foods

Can any of the company-specific risk be diversified away by investing in both E M and HVA Foods 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 HVA Foods 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 HVA Foods PLC, you can compare the effects of market volatilities on E M and HVA Foods 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 HVA Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of E M and HVA Foods.

Diversification Opportunities for E M and HVA Foods

0.62

Correlation Coefficient

E M  HVA Foods

Poor diversification

The 3 months correlation between EMLN0000 and HVA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding E M L and HVA Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HVA Foods PLC 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 HVA Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HVA Foods PLC has no effect on the direction of E M i.e., E M and HVA Foods go up and down completely randomly.

Pair Corralation between E M and HVA Foods

Assuming the 90 days trading horizon E M L is expected to generate 1.07 times more return on investment than HVA Foods. However, E M is 1.07 times more volatile than HVA Foods PLC. It trades about -0.03 of its potential returns per unit of risk. HVA Foods PLC is currently generating about -0.06 per unit of risk. If you would invest  390.00  in E M L on December 26, 2024 and sell it today you would lose (30.00) from holding E M L or give up 7.69% of portfolio value over 90 days.

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

E M L  vs.  HVA Foods PLC

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 somewhat strong basic indicators, E M is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HVA Foods PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days HVA Foods PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic 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 E M and HVA Foods

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

The idea behind E M L and HVA Foods PLC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.