Correlation Between Med Life and Electromagnetica

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

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

Diversification Opportunities for Med Life and Electromagnetica

-0.16

Correlation Coefficient

Med Life  Electromagnetica

Good diversification

The 3 months correlation between Med and Electromagnetica is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Med Life SA and Electromagnetica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromagnetica and Med Life 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 Med Life SA are associated (or correlated) with Electromagnetica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromagnetica has no effect on the direction of Med Life i.e., Med Life and Electromagnetica go up and down completely randomly.

Pair Corralation between Med Life and Electromagnetica

Given the investment horizon of 90 days Med Life is expected to generate 55.33 times less return on investment than Electromagnetica. But when comparing it to its historical volatility, Med Life SA is 1.41 times less risky than Electromagnetica. It trades about 0.0 of its potential returns per unit of risk. Electromagnetica SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Electromagnetica SA on October 24, 2024 and sell it today you would earn a total of  4.00  from holding Electromagnetica SA or generate 19.05% return on investment over 90 days.

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

Med Life SA  vs.  Electromagnetica SA

Med Life SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Med Life SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Med Life is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Electromagnetica

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electromagnetica SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Electromagnetica displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Med Life and Electromagnetica

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

The idea behind Med Life SA and Electromagnetica SA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.