Correlation Between Ross Stores and Entravision Communications

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

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

Diversification Opportunities for Ross Stores and Entravision Communications

0.52

Correlation Coefficient

Ross Stores  Entravision Communications

Very weak diversification

The 3 months correlation between Ross and Entravision is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications and Ross Stores 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 Ross Stores are associated (or correlated) with Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of Ross Stores i.e., Ross Stores and Entravision Communications go up and down completely randomly.

Pair Corralation between Ross Stores and Entravision Communications

Assuming the 90 days trading horizon Ross Stores is expected to generate 6.59 times less return on investment than Entravision Communications. But when comparing it to its historical volatility, Ross Stores is 2.04 times less risky than Entravision Communications. It trades about 0.03 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  174.00  in Entravision Communications on September 24, 2024 and sell it today you would earn a total of  62.00  from holding Entravision Communications or generate 35.63% return on investment over 90 days.

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

Ross Stores  vs.  Entravision Communications

Ross Stores

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Entravision Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entravision Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ross Stores and Entravision Communications

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

The idea behind Ross Stores and Entravision Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.