Correlation Between Infomedia and EROAD

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

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

Diversification Opportunities for Infomedia and EROAD

0.71

Correlation Coefficient

Infomedia  EROAD

Poor diversification

The 3 months correlation between Infomedia and EROAD is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Infomedia and EROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EROAD and Infomedia 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 Infomedia are associated (or correlated) with EROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EROAD has no effect on the direction of Infomedia i.e., Infomedia and EROAD go up and down completely randomly.

Pair Corralation between Infomedia and EROAD

Assuming the 90 days trading horizon Infomedia is expected to generate 1.04 times more return on investment than EROAD. However, Infomedia is 1.04 times more volatile than EROAD. It trades about -0.02 of its potential returns per unit of risk. EROAD is currently generating about -0.07 per unit of risk. If you would invest  142.00  in Infomedia on December 30, 2024 and sell it today you would lose (6.00) from holding Infomedia or give up 4.23% of portfolio value over 90 days.

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

Infomedia  vs.  EROAD

Infomedia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Infomedia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Infomedia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

EROAD

Risk-Adjusted Performance

Very Weak

Over the last 90 days EROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Infomedia and EROAD

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

The idea behind Infomedia and EROAD 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.