Correlation Between Empire Company and Covalon Technologies

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

By analyzing existing cross correlation between Empire Company Limited and Covalon Technologies, you can compare the effects of market volatilities on Empire Company and Covalon Technologies 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 Empire Company with a short position of Covalon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empire Company and Covalon Technologies.

Diversification Opportunities for Empire Company and Covalon Technologies

0.52

Correlation Coefficient

Empire Company  Covalon Technologies

Very weak diversification

The 3 months correlation between Empire and Covalon is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Empire Company Limited and Covalon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covalon Technologies and Empire Company 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 Empire Company Limited are associated (or correlated) with Covalon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covalon Technologies has no effect on the direction of Empire Company i.e., Empire Company and Covalon Technologies go up and down completely randomly.

Pair Corralation between Empire Company and Covalon Technologies

Assuming the 90 days trading horizon Empire Company Limited is expected to generate 0.38 times more return on investment than Covalon Technologies. However, Empire Company Limited is 2.67 times less risky than Covalon Technologies. It trades about 0.2 of its potential returns per unit of risk. Covalon Technologies is currently generating about 0.04 per unit of risk. If you would invest  3,957  in Empire Company Limited on September 14, 2024 and sell it today you would earn a total of  571.00  from holding Empire Company Limited or generate 14.43% return on investment over 90 days.

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

Empire Company Limited  vs.  Covalon Technologies

Empire Limited

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Company Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Empire Company unveiled solid returns over the last few months and may actually be approaching a breakup point.

Covalon Technologies

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covalon Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Covalon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Empire Company and Covalon Technologies

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

The idea behind Empire Company Limited and Covalon Technologies 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.