Correlation Between STEP Energy and European Residential

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

By analyzing existing cross correlation between STEP Energy Services and European Residential Real, you can compare the effects of market volatilities on STEP Energy and European Residential 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 STEP Energy with a short position of European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEP Energy and European Residential.

Diversification Opportunities for STEP Energy and European Residential

-0.38

Correlation Coefficient

STEP Energy  European Residential

Very good diversification

The 3 months correlation between STEP and European is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding STEP Energy Services and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and STEP 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 STEP Energy Services are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of STEP Energy i.e., STEP Energy and European Residential go up and down completely randomly.

Pair Corralation between STEP Energy and European Residential

Assuming the 90 days trading horizon STEP Energy is expected to generate 1.73 times less return on investment than European Residential. In addition to that, STEP Energy is 1.25 times more volatile than European Residential Real. It trades about 0.04 of its total potential returns per unit of risk. European Residential Real is currently generating about 0.08 per unit of volatility. If you would invest  233.00  in European Residential Real on December 30, 2024 and sell it today you would earn a total of  19.00  from holding European Residential Real or generate 8.15% return on investment over 90 days.

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

STEP Energy Services  vs.  European Residential Real

STEP Energy Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STEP Energy Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, STEP Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

European Residential Real

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with STEP Energy and European Residential

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

The idea behind STEP Energy Services and European Residential Real 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.