Correlation Between E I and E I
Can any of the company-specific risk be diversified away by investing in both E I and E I 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 E I and E I into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between E I du and E I du, you can compare the effects of market volatilities on E I and E I 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 E I with a short position of E I. Check out your portfolio center. Please also check ongoing floating volatility patterns of E I and E I.
Diversification Opportunities for E I and E I
Very poor diversification
The 3 months correlation between CTA-PA and CTA-PB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding E I du and E I du in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E I du and E I 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 E I du are associated (or correlated) with E I. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E I du has no effect on the direction of E I i.e., E I and E I go up and down completely randomly.
Pair Corralation between E I and E I
Assuming the 90 days trading horizon E I du is expected to generate 1.57 times more return on investment than E I. However, E I is 1.57 times more volatile than E I du. It trades about -0.01 of its potential returns per unit of risk. E I du is currently generating about -0.18 per unit of risk. If you would invest 5,900 in E I du on August 30, 2024 and sell it today you would lose (50.00) from holding E I du or give up 0.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
E I du vs. E I du
Performance |
| Timeline |
| E I du |
| E I du |
E I and E I Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with E I and E I
The main advantage of trading using opposite E I and E I positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E I position performs unexpectedly, E I 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 E I will offset losses from the drop in E I's long position.The idea behind E I du and E I du 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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