Correlation Between Empire Company and North West

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

Diversification Opportunities for Empire Company and North West

0.83

Correlation Coefficient

Empire Company  North West

Very poor diversification

The 3 months correlation between Empire and North is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Empire Company Limited and North West in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North West 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 North West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North West has no effect on the direction of Empire Company i.e., Empire Company and North West go up and down completely randomly.

Pair Corralation between Empire Company and North West

Assuming the 90 days trading horizon Empire Company is expected to generate 1.13 times less return on investment than North West. But when comparing it to its historical volatility, Empire Company Limited is 1.24 times less risky than North West. It trades about 0.16 of its potential returns per unit of risk. North West is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,532  in North West on August 31, 2024 and sell it today you would earn a total of  623.00  from holding North West or generate 13.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Empire Company Limited  vs.  North West

Empire Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Company Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Empire Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

North West

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North West are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, North West displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire Company and North West

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

The idea behind Empire Company Limited and North West 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.