Correlation Between Elco and Diplomat Holdings
Can any of the company-specific risk be diversified away by investing in both Elco and Diplomat Holdings 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 Elco and Diplomat Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elco and Diplomat Holdings, you can compare the effects of market volatilities on Elco and Diplomat Holdings 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 Elco with a short position of Diplomat Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elco and Diplomat Holdings.
Diversification Opportunities for Elco and Diplomat Holdings
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Elco and Diplomat is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Elco and Diplomat Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diplomat Holdings and Elco 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 Elco are associated (or correlated) with Diplomat Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diplomat Holdings has no effect on the direction of Elco i.e., Elco and Diplomat Holdings go up and down completely randomly.
Pair Corralation between Elco and Diplomat Holdings
Assuming the 90 days trading horizon Elco is expected to generate 1.56 times less return on investment than Diplomat Holdings. But when comparing it to its historical volatility, Elco is 1.93 times less risky than Diplomat Holdings. It trades about 0.54 of its potential returns per unit of risk. Diplomat Holdings is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 349,200 in Diplomat Holdings on September 1, 2024 and sell it today you would earn a total of 83,000 from holding Diplomat Holdings or generate 23.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Elco vs. Diplomat Holdings
Performance |
| Timeline |
| Elco |
| Diplomat Holdings |
Elco and Diplomat Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Elco and Diplomat Holdings
The main advantage of trading using opposite Elco and Diplomat Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elco position performs unexpectedly, Diplomat Holdings 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 Diplomat Holdings will offset losses from the drop in Diplomat Holdings' long position.| Elco vs. Alony Hetz Properties | Elco vs. Electra | Elco vs. Clal Insurance Enterprises | Elco vs. Delek Automotive Systems |
| Diplomat Holdings vs. Nrgene Technologies | Diplomat Holdings vs. Isras Investment | Diplomat Holdings vs. Hiron Trade Investments Industrial | Diplomat Holdings vs. GODM Investments |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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