Correlation Between Inter Parfums and Environmental Control

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

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

Diversification Opportunities for Inter Parfums and Environmental Control

-0.4

Correlation Coefficient

Inter Parfums  Environmental Control

Very good diversification

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

Pair Corralation between Inter Parfums and Environmental Control

Given the investment horizon of 90 days Inter Parfums is expected to generate 37.71 times less return on investment than Environmental Control. But when comparing it to its historical volatility, Inter Parfums is 24.49 times less risky than Environmental Control. It trades about 0.08 of its potential returns per unit of risk. Environmental Control Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.81  in Environmental Control Corp on October 8, 2024 and sell it today you would lose (0.01) from holding Environmental Control Corp or give up 1.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Inter Parfums  vs.  Environmental Control Corp

Inter Parfums

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Inter Parfums may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Environmental Control

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Environmental Control Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Environmental Control displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inter Parfums and Environmental Control

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

The idea behind Inter Parfums and Environmental Control 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.