Correlation Between Reacap Financial and Ezz Steel

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

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

Diversification Opportunities for Reacap Financial and Ezz Steel

-0.34

Correlation Coefficient

Reacap Financial  Ezz Steel

Very good diversification

The 3 months correlation between Reacap and Ezz is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Reacap Financial Investments and Ezz Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ezz Steel and Reacap Financial 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 Reacap Financial Investments are associated (or correlated) with Ezz Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ezz Steel has no effect on the direction of Reacap Financial i.e., Reacap Financial and Ezz Steel go up and down completely randomly.

Pair Corralation between Reacap Financial and Ezz Steel

Assuming the 90 days trading horizon Reacap Financial is expected to generate 7.11 times less return on investment than Ezz Steel. In addition to that, Reacap Financial is 1.05 times more volatile than Ezz Steel. It trades about 0.04 of its total potential returns per unit of risk. Ezz Steel is currently generating about 0.28 per unit of volatility. If you would invest  11,200  in Ezz Steel on December 5, 2024 and sell it today you would earn a total of  2,531  from holding Ezz Steel or generate 22.6% return on investment over 90 days.

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

Reacap Financial Investments  vs.  Ezz Steel

Reacap Financial Inv

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reacap Financial Investments are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Reacap Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ezz Steel

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ezz Steel are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Ezz Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reacap Financial and Ezz Steel

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

The idea behind Reacap Financial Investments and Ezz Steel 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.