Correlation Between Ezz Steel and EGX 33

Can any of the company-specific risk be diversified away by investing in both Ezz Steel and EGX 33 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 EGX 33 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ezz Steel and EGX 33 Shariah, you can compare the effects of market volatilities on Ezz Steel and EGX 33 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 EGX 33. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ezz Steel and EGX 33.

Diversification Opportunities for Ezz Steel and EGX 33

0.51

Correlation Coefficient

Ezz Steel  EGX 33

Very weak diversification

The 3 months correlation between Ezz and EGX is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ezz Steel and EGX 33 Shariah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EGX 33 Shariah 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 EGX 33. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EGX 33 Shariah has no effect on the direction of Ezz Steel i.e., Ezz Steel and EGX 33 go up and down completely randomly.

Pair Corralation between Ezz Steel and EGX 33

Assuming the 90 days trading horizon Ezz Steel is expected to generate 1.08 times less return on investment than EGX 33. In addition to that, Ezz Steel is 2.63 times more volatile than EGX 33 Shariah. It trades about 0.06 of its total potential returns per unit of risk. EGX 33 Shariah is currently generating about 0.16 per unit of volatility. If you would invest  288,443  in EGX 33 Shariah on September 16, 2024 and sell it today you would earn a total of  29,924  from holding EGX 33 Shariah or generate 10.37% return on investment over 90 days.

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

Ezz Steel  vs.  EGX 33 Shariah

Pair Trading with Ezz Steel and EGX 33

The main advantage of trading using opposite Ezz Steel and EGX 33 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ezz Steel position performs unexpectedly, EGX 33 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 EGX 33 will offset losses from the drop in EGX 33's long position.

The idea behind Ezz Steel and EGX 33 Shariah 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.