Correlation Between EROAD and London City

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

By analyzing existing cross correlation between EROAD and London City Equities, you can compare the effects of market volatilities on EROAD and London City 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 EROAD with a short position of London City. Check out your portfolio center. Please also check ongoing floating volatility patterns of EROAD and London City.

Diversification Opportunities for EROAD and London City

-0.11

Correlation Coefficient

EROAD  London City

Good diversification

The 3 months correlation between EROAD and London is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding EROAD and London City Equities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London City Equities and EROAD 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 EROAD are associated (or correlated) with London City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London City Equities has no effect on the direction of EROAD i.e., EROAD and London City go up and down completely randomly.

Pair Corralation between EROAD and London City

Assuming the 90 days trading horizon EROAD is expected to generate 3.27 times more return on investment than London City. However, EROAD is 3.27 times more volatile than London City Equities. It trades about 0.04 of its potential returns per unit of risk. London City Equities is currently generating about 0.07 per unit of risk. If you would invest  70.00  in EROAD on October 9, 2024 and sell it today you would earn a total of  30.00  from holding EROAD or generate 42.86% return on investment over 90 days.

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

EROAD  vs.  London City Equities

EROAD

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EROAD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, EROAD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

London City Equities

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in London City Equities are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, London City unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EROAD and London City

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

The idea behind EROAD and London City Equities 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.