Correlation Between East Coast and Mega Lifesciences
Can any of the company-specific risk be diversified away by investing in both East Coast and Mega Lifesciences 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 East Coast and Mega Lifesciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East Coast Furnitech and Mega Lifesciences Public, you can compare the effects of market volatilities on East Coast and Mega Lifesciences 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 East Coast with a short position of Mega Lifesciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Coast and Mega Lifesciences.
Diversification Opportunities for East Coast and Mega Lifesciences
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between East and Mega is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding East Coast Furnitech and Mega Lifesciences Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mega Lifesciences Public and East Coast 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 East Coast Furnitech are associated (or correlated) with Mega Lifesciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mega Lifesciences Public has no effect on the direction of East Coast i.e., East Coast and Mega Lifesciences go up and down completely randomly.
Pair Corralation between East Coast and Mega Lifesciences
Assuming the 90 days trading horizon East Coast Furnitech is expected to generate 29.69 times more return on investment than Mega Lifesciences. However, East Coast is 29.69 times more volatile than Mega Lifesciences Public. It trades about 0.04 of its potential returns per unit of risk. Mega Lifesciences Public is currently generating about -0.04 per unit of risk. If you would invest 178.00 in East Coast Furnitech on August 28, 2024 and sell it today you would lose (136.00) from holding East Coast Furnitech or give up 76.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Coast Furnitech vs. Mega Lifesciences Public
Performance |
| Timeline |
| East Coast Furnitech |
| Mega Lifesciences Public |
East Coast and Mega Lifesciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East Coast and Mega Lifesciences
The main advantage of trading using opposite East Coast and Mega Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Coast position performs unexpectedly, Mega Lifesciences 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 Mega Lifesciences will offset losses from the drop in Mega Lifesciences' long position.| East Coast vs. G Capital Public | East Coast vs. E for L | East Coast vs. Filter Vision Public | East Coast vs. Chewathai Public |
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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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