Correlation Between Ecocab and Daedong Metals
Can any of the company-specific risk be diversified away by investing in both Ecocab and Daedong Metals 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 Ecocab and Daedong Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecocab Co and Daedong Metals Co, you can compare the effects of market volatilities on Ecocab and Daedong Metals 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 Ecocab with a short position of Daedong Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecocab and Daedong Metals.
Diversification Opportunities for Ecocab and Daedong Metals
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ecocab and Daedong is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Ecocab Co and Daedong Metals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Metals and Ecocab 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 Ecocab Co are associated (or correlated) with Daedong Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Metals has no effect on the direction of Ecocab i.e., Ecocab and Daedong Metals go up and down completely randomly.
Pair Corralation between Ecocab and Daedong Metals
Assuming the 90 days trading horizon Ecocab Co is expected to generate 1.5 times more return on investment than Daedong Metals. However, Ecocab is 1.5 times more volatile than Daedong Metals Co. It trades about 0.14 of its potential returns per unit of risk. Daedong Metals Co is currently generating about 0.12 per unit of risk. If you would invest 127,300 in Ecocab Co on August 27, 2024 and sell it today you would earn a total of 30,100 from holding Ecocab Co or generate 23.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecocab Co vs. Daedong Metals Co
Performance |
| Timeline |
| Ecocab |
| Daedong Metals |
Ecocab and Daedong Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecocab and Daedong Metals
The main advantage of trading using opposite Ecocab and Daedong Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecocab position performs unexpectedly, Daedong Metals 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 Daedong Metals will offset losses from the drop in Daedong Metals' long position.The idea behind Ecocab Co and Daedong Metals 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.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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