Correlation Between CO2 Energy and ESH Acquisition

Can any of the company-specific risk be diversified away by investing in both CO2 Energy and ESH Acquisition 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 CO2 Energy and ESH Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CO2 Energy Transition and ESH Acquisition Corp, you can compare the effects of market volatilities on CO2 Energy and ESH Acquisition 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 CO2 Energy with a short position of ESH Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of CO2 Energy and ESH Acquisition.

Diversification Opportunities for CO2 Energy and ESH Acquisition

0.44

Correlation Coefficient

CO2 Energy  ESH Acquisition

Very weak diversification

The 3 months correlation between CO2 and ESH is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding CO2 Energy Transition and ESH Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESH Acquisition Corp and CO2 Energy 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 CO2 Energy Transition are associated (or correlated) with ESH Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESH Acquisition Corp has no effect on the direction of CO2 Energy i.e., CO2 Energy and ESH Acquisition go up and down completely randomly.

Pair Corralation between CO2 Energy and ESH Acquisition

Assuming the 90 days horizon CO2 Energy is expected to generate 508.85 times less return on investment than ESH Acquisition. But when comparing it to its historical volatility, CO2 Energy Transition is 417.43 times less risky than ESH Acquisition. It trades about 0.19 of its potential returns per unit of risk. ESH Acquisition Corp is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  7.01  in ESH Acquisition Corp on September 4, 2024 and sell it today you would earn a total of  2.99  from holding ESH Acquisition Corp or generate 42.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	80.0%
Values	Daily Returns

CO2 Energy Transition  vs.  ESH Acquisition Corp

CO2 Energy Transition

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CO2 Energy Transition are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, CO2 Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ESH Acquisition Corp

Risk-Adjusted Performance

6 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ESH Acquisition Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, ESH Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CO2 Energy and ESH Acquisition

The main advantage of trading using opposite CO2 Energy and ESH Acquisition positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CO2 Energy position performs unexpectedly, ESH Acquisition 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 ESH Acquisition will offset losses from the drop in ESH Acquisition's long position.

The idea behind CO2 Energy Transition and ESH Acquisition 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.