Correlation Between EGX 33 and Ezz Steel

Can any of the company-specific risk be diversified away by investing in both EGX 33 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 EGX 33 and Ezz Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EGX 33 Shariah and Ezz Steel, you can compare the effects of market volatilities on EGX 33 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 EGX 33 with a short position of Ezz Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of EGX 33 and Ezz Steel.

Diversification Opportunities for EGX 33 and Ezz Steel

0.49

Correlation Coefficient

EGX 33  Ezz Steel

Very weak diversification

The 3 months correlation between EGX and Ezz is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding EGX 33 Shariah and Ezz Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ezz Steel and EGX 33 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 EGX 33 Shariah 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 EGX 33 i.e., EGX 33 and Ezz Steel go up and down completely randomly.

Pair Corralation between EGX 33 and Ezz Steel

Assuming the 90 days trading horizon EGX 33 is expected to generate 1.8 times less return on investment than Ezz Steel. But when comparing it to its historical volatility, EGX 33 Shariah is 1.36 times less risky than Ezz Steel. It trades about 0.22 of its potential returns per unit of risk. Ezz Steel is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  11,248  in Ezz Steel on December 29, 2024 and sell it today you would earn a total of  2,142  from holding Ezz Steel or generate 19.04% return on investment over 90 days.

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

EGX 33 Shariah  vs.  Ezz Steel

Pair Trading with EGX 33 and Ezz Steel

The main advantage of trading using opposite EGX 33 and Ezz Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EGX 33 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 EGX 33 Shariah 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.