Correlation Between All Iron and Ebro Foods

Can any of the company-specific risk be diversified away by investing in both All Iron and Ebro Foods 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 All Iron and Ebro Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between All Iron Re and Ebro Foods, you can compare the effects of market volatilities on All Iron and Ebro Foods 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 All Iron with a short position of Ebro Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of All Iron and Ebro Foods.

Diversification Opportunities for All Iron and Ebro Foods

-0.07

Correlation Coefficient

All Iron  Ebro Foods

Good diversification

The 3 months correlation between All and Ebro is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding All Iron Re and Ebro Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods and All Iron 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 All Iron Re are associated (or correlated) with Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods has no effect on the direction of All Iron i.e., All Iron and Ebro Foods go up and down completely randomly.

Pair Corralation between All Iron and Ebro Foods

Assuming the 90 days trading horizon All Iron Re is expected to generate 2.46 times more return on investment than Ebro Foods. However, All Iron is 2.46 times more volatile than Ebro Foods. It trades about 0.01 of its potential returns per unit of risk. Ebro Foods is currently generating about 0.02 per unit of risk. If you would invest  1,100  in All Iron Re on October 9, 2024 and sell it today you would earn a total of  0.00  from holding All Iron Re or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

All Iron Re  vs.  Ebro Foods

All Iron Re

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in All Iron Re are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, All Iron exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ebro Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebro Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ebro Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with All Iron and Ebro Foods

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

The idea behind All Iron Re and Ebro Foods 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.