Correlation Between Momentum Group and Embellence Group

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

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

Diversification Opportunities for Momentum Group and Embellence Group

-0.14

Correlation Coefficient

Momentum Group  Embellence Group

Good diversification

The 3 months correlation between Momentum and Embellence is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Momentum Group AB and Embellence Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embellence Group and Momentum Group 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 Momentum Group AB are associated (or correlated) with Embellence Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embellence Group has no effect on the direction of Momentum Group i.e., Momentum Group and Embellence Group go up and down completely randomly.

Pair Corralation between Momentum Group and Embellence Group

Assuming the 90 days trading horizon Momentum Group AB is expected to generate 1.49 times more return on investment than Embellence Group. However, Momentum Group is 1.49 times more volatile than Embellence Group AB. It trades about 0.05 of its potential returns per unit of risk. Embellence Group AB is currently generating about -0.21 per unit of risk. If you would invest  16,500  in Momentum Group AB on September 2, 2024 and sell it today you would earn a total of  1,060  from holding Momentum Group AB or generate 6.42% return on investment over 90 days.

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

Momentum Group AB  vs.  Embellence Group AB

Momentum Group AB

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Momentum Group AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Momentum Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Embellence Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embellence Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Momentum Group and Embellence Group

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

The idea behind Momentum Group AB and Embellence Group AB 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.