Correlation Between Earth Science and Emergent Health

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

By analyzing existing cross correlation between Earth Science Tech and Emergent Health Corp, you can compare the effects of market volatilities on Earth Science and Emergent Health 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 Earth Science with a short position of Emergent Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Earth Science and Emergent Health.

Diversification Opportunities for Earth Science and Emergent Health

-0.18

Correlation Coefficient

Earth Science  Emergent Health

Good diversification

The 3 months correlation between Earth and Emergent is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Earth Science Tech and Emergent Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emergent Health Corp and Earth Science 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 Earth Science Tech are associated (or correlated) with Emergent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emergent Health Corp has no effect on the direction of Earth Science i.e., Earth Science and Emergent Health go up and down completely randomly.

Pair Corralation between Earth Science and Emergent Health

Given the investment horizon of 90 days Earth Science is expected to generate 1.94 times less return on investment than Emergent Health. But when comparing it to its historical volatility, Earth Science Tech is 1.23 times less risky than Emergent Health. It trades about 0.05 of its potential returns per unit of risk. Emergent Health Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.08  in Emergent Health Corp on December 28, 2024 and sell it today you would earn a total of  0.01  from holding Emergent Health Corp or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Earth Science Tech  vs.  Emergent Health Corp

Earth Science Tech

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Earth Science Tech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Earth Science unveiled solid returns over the last few months and may actually be approaching a breakup point.

Emergent Health Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Emergent Health Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Emergent Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Earth Science and Emergent Health

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

The idea behind Earth Science Tech and Emergent Health Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.