Correlation Between Egyptian Transport and Ezz Steel

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

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

Diversification Opportunities for Egyptian Transport and Ezz Steel

0.4

Correlation Coefficient

Egyptian Transport  Ezz Steel

Very weak diversification

The 3 months correlation between Egyptian and Ezz is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Egyptian Transport and Ezz Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ezz Steel and Egyptian Transport 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 Egyptian Transport are associated (or correlated) with Ezz Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ezz Steel has no effect on the direction of Egyptian Transport i.e., Egyptian Transport and Ezz Steel go up and down completely randomly.

Pair Corralation between Egyptian Transport and Ezz Steel

Assuming the 90 days trading horizon Egyptian Transport is expected to generate 1.04 times more return on investment than Ezz Steel. However, Egyptian Transport is 1.04 times more volatile than Ezz Steel. It trades about 0.23 of its potential returns per unit of risk. Ezz Steel is currently generating about 0.06 per unit of risk. If you would invest  416.00  in Egyptian Transport on September 16, 2024 and sell it today you would earn a total of  188.00  from holding Egyptian Transport or generate 45.19% return on investment over 90 days.

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

Egyptian Transport  vs.  Ezz Steel

Egyptian Transport

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Egyptian Transport are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Egyptian Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Ezz Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ezz Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Ezz Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Egyptian Transport and Ezz Steel

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

The idea behind Egyptian Transport and Ezz Steel 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.