Correlation Between Flagship Investments and Emperor Energy

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

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

Diversification Opportunities for Flagship Investments and Emperor Energy

0.79

Correlation Coefficient

Flagship Investments  Emperor Energy

Poor diversification

The 3 months correlation between Flagship and Emperor is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Flagship Investments and Emperor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emperor Energy and Flagship Investments 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 Flagship Investments are associated (or correlated) with Emperor Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emperor Energy has no effect on the direction of Flagship Investments i.e., Flagship Investments and Emperor Energy go up and down completely randomly.

Pair Corralation between Flagship Investments and Emperor Energy

Assuming the 90 days trading horizon Flagship Investments is expected to generate 7.88 times less return on investment than Emperor Energy. But when comparing it to its historical volatility, Flagship Investments is 5.67 times less risky than Emperor Energy. It trades about 0.08 of its potential returns per unit of risk. Emperor Energy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.20  in Emperor Energy on September 30, 2024 and sell it today you would earn a total of  1.50  from holding Emperor Energy or generate 125.0% return on investment over 90 days.

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

Flagship Investments  vs.  Emperor Energy

Flagship Investments

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flagship Investments are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Flagship Investments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Emperor Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emperor Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Emperor Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flagship Investments and Emperor Energy

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

The idea behind Flagship Investments and Emperor Energy 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.