Correlation Between Eureka Acquisition and Bayview Acquisition

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

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

Diversification Opportunities for Eureka Acquisition and Bayview Acquisition

-0.28

Correlation Coefficient

Eureka Acquisition  Bayview Acquisition

Very good diversification

The 3 months correlation between Eureka and Bayview is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Eureka Acquisition Corp and Bayview Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayview Acquisition Corp and Eureka Acquisition 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 Eureka Acquisition Corp are associated (or correlated) with Bayview Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayview Acquisition Corp has no effect on the direction of Eureka Acquisition i.e., Eureka Acquisition and Bayview Acquisition go up and down completely randomly.

Pair Corralation between Eureka Acquisition and Bayview Acquisition

Given the investment horizon of 90 days Eureka Acquisition is expected to generate 72.65 times less return on investment than Bayview Acquisition. But when comparing it to its historical volatility, Eureka Acquisition Corp is 104.69 times less risky than Bayview Acquisition. It trades about 0.21 of its potential returns per unit of risk. Bayview Acquisition Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Bayview Acquisition Corp on December 29, 2024 and sell it today you would earn a total of  5.00  from holding Bayview Acquisition Corp or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	47.54%
Values	Daily Returns

Eureka Acquisition Corp  vs.  Bayview Acquisition Corp

Eureka Acquisition Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eureka Acquisition Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Eureka Acquisition is not utilizing all of its potentials. The new stock price mess, may contribute to short-term losses for the institutional investors.

Bayview Acquisition Corp

Risk-Adjusted Performance

Good

Over the last 90 days Bayview Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively fragile basic indicators, Bayview Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eureka Acquisition and Bayview Acquisition

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

The idea behind Eureka Acquisition Corp and Bayview Acquisition 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.