Correlation Between Ezz Steel and Memphis Pharmaceuticals

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

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

Diversification Opportunities for Ezz Steel and Memphis Pharmaceuticals

0.27

Correlation Coefficient

Ezz Steel  Memphis Pharmaceuticals

Modest diversification

The 3 months correlation between Ezz and Memphis is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ezz Steel and Memphis Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Memphis Pharmaceuticals and Ezz Steel 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 Ezz Steel are associated (or correlated) with Memphis Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Memphis Pharmaceuticals has no effect on the direction of Ezz Steel i.e., Ezz Steel and Memphis Pharmaceuticals go up and down completely randomly.

Pair Corralation between Ezz Steel and Memphis Pharmaceuticals

Assuming the 90 days trading horizon Ezz Steel is expected to generate 0.59 times more return on investment than Memphis Pharmaceuticals. However, Ezz Steel is 1.7 times less risky than Memphis Pharmaceuticals. It trades about 0.14 of its potential returns per unit of risk. Memphis Pharmaceuticals is currently generating about -0.06 per unit of risk. If you would invest  10,030  in Ezz Steel on October 11, 2024 and sell it today you would earn a total of  1,670  from holding Ezz Steel or generate 16.65% return on investment over 90 days.

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

Ezz Steel  vs.  Memphis Pharmaceuticals

Ezz Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ezz Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Ezz Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Memphis Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Memphis Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ezz Steel and Memphis Pharmaceuticals

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

The idea behind Ezz Steel and Memphis Pharmaceuticals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.