Correlation Between EROAD and Mystate

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

By analyzing existing cross correlation between EROAD and Mystate, you can compare the effects of market volatilities on EROAD and Mystate 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 Mystate. Check out your portfolio center. Please also check ongoing floating volatility patterns of EROAD and Mystate.

Diversification Opportunities for EROAD and Mystate

0.56

Correlation Coefficient

EROAD  Mystate

Very weak diversification

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

Pair Corralation between EROAD and Mystate

Assuming the 90 days trading horizon EROAD is expected to generate 1.09 times less return on investment than Mystate. In addition to that, EROAD is 2.68 times more volatile than Mystate. It trades about 0.04 of its total potential returns per unit of risk. Mystate is currently generating about 0.11 per unit of volatility. If you would invest  301.00  in Mystate on October 5, 2024 and sell it today you would earn a total of  133.00  from holding Mystate or generate 44.19% return on investment over 90 days.

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

EROAD  vs.  Mystate

EROAD

Risk-Adjusted Performance

4 of 100

Insignificant

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 uncertain fundamental indicators, EROAD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Mystate

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mystate are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mystate unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EROAD and Mystate

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

The idea behind EROAD and Mystate 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.