Correlation Between East Resources and Better World

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

By analyzing existing cross correlation between East Resources Acquisition and Better World Acquisition, you can compare the effects of market volatilities on East Resources and Better World 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 East Resources with a short position of Better World. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Resources and Better World.

Diversification Opportunities for East Resources and Better World

0.68

Correlation Coefficient

East Resources  Better World

Poor diversification

The 3 months correlation between East and Better is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding East Resources Acquisition and Better World Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better World Acquisition and East Resources 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 East Resources Acquisition are associated (or correlated) with Better World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better World Acquisition has no effect on the direction of East Resources i.e., East Resources and Better World go up and down completely randomly.

Pair Corralation between East Resources and Better World

Assuming the 90 days horizon East Resources Acquisition is expected to generate 89.49 times more return on investment than Better World. However, East Resources is 89.49 times more volatile than Better World Acquisition. It trades about 0.09 of its potential returns per unit of risk. Better World Acquisition is currently generating about 0.2 per unit of risk. If you would invest  18.00  in East Resources Acquisition on September 20, 2024 and sell it today you would earn a total of  10.00  from holding East Resources Acquisition or generate 55.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.67%
Values	Daily Returns

East Resources Acquisition  vs.  Better World Acquisition

East Resources Acqui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Resources Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, East Resources is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Better World Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Better World Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Better World is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with East Resources and Better World

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

The idea behind East Resources Acquisition and Better World Acquisition 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.