Correlation Between Errawarra Resources and Ecofibre

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

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

Diversification Opportunities for Errawarra Resources and Ecofibre

0.38

Correlation Coefficient

Errawarra Resources  Ecofibre

Weak diversification

The 3 months correlation between Errawarra and Ecofibre is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Errawarra Resources and Ecofibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecofibre and Errawarra 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 Errawarra Resources are associated (or correlated) with Ecofibre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecofibre has no effect on the direction of Errawarra Resources i.e., Errawarra Resources and Ecofibre go up and down completely randomly.

Pair Corralation between Errawarra Resources and Ecofibre

Assuming the 90 days trading horizon Errawarra Resources is expected to generate 2.99 times more return on investment than Ecofibre. However, Errawarra Resources is 2.99 times more volatile than Ecofibre. It trades about 0.07 of its potential returns per unit of risk. Ecofibre is currently generating about -0.03 per unit of risk. If you would invest  5.10  in Errawarra Resources on December 29, 2024 and sell it today you would earn a total of  0.90  from holding Errawarra Resources or generate 17.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Errawarra Resources  vs.  Ecofibre

Errawarra Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Errawarra Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Errawarra Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ecofibre

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ecofibre has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Errawarra Resources and Ecofibre

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

The idea behind Errawarra Resources and Ecofibre 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.