Correlation Between Evergreen Steel and Solar Applied
Can any of the company-specific risk be diversified away by investing in both Evergreen Steel and Solar Applied 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 Evergreen Steel and Solar Applied into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Evergreen Steel Corp and Solar Applied Materials, you can compare the effects of market volatilities on Evergreen Steel and Solar Applied 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 Evergreen Steel with a short position of Solar Applied. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evergreen Steel and Solar Applied.
Diversification Opportunities for Evergreen Steel and Solar Applied
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Evergreen and Solar is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Evergreen Steel Corp and Solar Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Applied Materials and Evergreen Steel 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 Evergreen Steel Corp are associated (or correlated) with Solar Applied. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Applied Materials has no effect on the direction of Evergreen Steel i.e., Evergreen Steel and Solar Applied go up and down completely randomly.
Pair Corralation between Evergreen Steel and Solar Applied
Assuming the 90 days trading horizon Evergreen Steel Corp is expected to under-perform the Solar Applied. But the stock apears to be less risky and, when comparing its historical volatility, Evergreen Steel Corp is 1.23 times less risky than Solar Applied. The stock trades about -0.04 of its potential returns per unit of risk. The Solar Applied Materials is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 6,140 in Solar Applied Materials on November 6, 2024 and sell it today you would lose (70.00) from holding Solar Applied Materials or give up 1.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Evergreen Steel Corp vs. Solar Applied Materials
Performance |
| Timeline |
| Evergreen Steel Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Solar Applied Materials |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Evergreen Steel and Solar Applied Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Evergreen Steel and Solar Applied
The main advantage of trading using opposite Evergreen Steel and Solar Applied positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evergreen Steel position performs unexpectedly, Solar Applied 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 Solar Applied will offset losses from the drop in Solar Applied's long position.The idea behind Evergreen Steel Corp and Solar Applied Materials 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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