Correlation Between ED and Top Material
Can any of the company-specific risk be diversified away by investing in both ED and Top Material 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 ED and Top Material into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ED Co and Top Material Co, you can compare the effects of market volatilities on ED and Top Material 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 ED with a short position of Top Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of ED and Top Material.
Diversification Opportunities for ED and Top Material
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ED and Top is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ED Co and Top Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Top Material and ED 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 ED Co are associated (or correlated) with Top Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Top Material has no effect on the direction of ED i.e., ED and Top Material go up and down completely randomly.
Pair Corralation between ED and Top Material
Assuming the 90 days trading horizon ED Co is expected to generate 1.8 times more return on investment than Top Material. However, ED is 1.8 times more volatile than Top Material Co. It trades about 0.06 of its potential returns per unit of risk. Top Material Co is currently generating about -0.07 per unit of risk. If you would invest 1,784,778 in ED Co on September 4, 2024 and sell it today you would earn a total of 785,222 from holding ED Co or generate 44.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ED Co vs. Top Material Co
Performance |
| Timeline |
| ED Co |
| Top Material |
ED and Top Material Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ED and Top Material
The main advantage of trading using opposite ED and Top Material positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ED position performs unexpectedly, Top Material 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 Top Material will offset losses from the drop in Top Material's long position.The idea behind ED Co and Top Material Co 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.| Top Material vs. Samsung Electronics Co | Top Material vs. Samsung Electronics Co | Top Material vs. LG Energy Solution | Top Material vs. SK Hynix |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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