Correlation Between Far Eastern and Eternal Materials
Can any of the company-specific risk be diversified away by investing in both Far Eastern and Eternal Materials 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 Far Eastern and Eternal Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far Eastern New and Eternal Materials Co, you can compare the effects of market volatilities on Far Eastern and Eternal Materials 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 Far Eastern with a short position of Eternal Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Eternal Materials.
Diversification Opportunities for Far Eastern and Eternal Materials
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Far and Eternal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern New and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials and Far Eastern 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 Far Eastern New are associated (or correlated) with Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Far Eastern i.e., Far Eastern and Eternal Materials go up and down completely randomly.
Pair Corralation between Far Eastern and Eternal Materials
Assuming the 90 days trading horizon Far Eastern New is expected to under-perform the Eternal Materials. In addition to that, Far Eastern is 1.68 times more volatile than Eternal Materials Co. It trades about -0.1 of its total potential returns per unit of risk. Eternal Materials Co is currently generating about 0.0 per unit of volatility. If you would invest 2,835 in Eternal Materials Co on November 6, 2024 and sell it today you would earn a total of 0.00 from holding Eternal Materials Co or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Far Eastern New vs. Eternal Materials Co
Performance |
| Timeline |
| Far Eastern New |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Eternal Materials |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Far Eastern and Eternal Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far Eastern and Eternal Materials
The main advantage of trading using opposite Far Eastern and Eternal Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Eternal Materials 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 Eternal Materials will offset losses from the drop in Eternal Materials' long position.The idea behind Far Eastern New and Eternal Materials 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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