Correlation Between Eternal Materials and Allied Industrial
Can any of the company-specific risk be diversified away by investing in both Eternal Materials and Allied Industrial 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 Eternal Materials and Allied Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eternal Materials Co and Allied Industrial, you can compare the effects of market volatilities on Eternal Materials and Allied Industrial 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 Eternal Materials with a short position of Allied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eternal Materials and Allied Industrial.
Diversification Opportunities for Eternal Materials and Allied Industrial
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Eternal and Allied is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Materials Co and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial and Eternal Materials 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 Eternal Materials Co are associated (or correlated) with Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of Eternal Materials i.e., Eternal Materials and Allied Industrial go up and down completely randomly.
Pair Corralation between Eternal Materials and Allied Industrial
Assuming the 90 days trading horizon Eternal Materials Co is expected to under-perform the Allied Industrial. In addition to that, Eternal Materials is 2.38 times more volatile than Allied Industrial. It trades about -0.17 of its total potential returns per unit of risk. Allied Industrial is currently generating about 0.08 per unit of volatility. If you would invest 1,260 in Allied Industrial on September 3, 2024 and sell it today you would earn a total of 10.00 from holding Allied Industrial or generate 0.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eternal Materials Co vs. Allied Industrial
Performance |
| Timeline |
| Eternal Materials |
| Allied Industrial |
Eternal Materials and Allied Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eternal Materials and Allied Industrial
The main advantage of trading using opposite Eternal Materials and Allied Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eternal Materials position performs unexpectedly, Allied Industrial 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 Allied Industrial will offset losses from the drop in Allied Industrial's long position.The idea behind Eternal Materials Co and Allied Industrial 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.| Allied Industrial vs. Delta Electronics | Allied Industrial vs. China Steel Chemical | Allied Industrial vs. WiseChip Semiconductor | Allied Industrial vs. Novatek Microelectronics Corp |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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