Correlation Between Ecofibre and Summit Resources
Can any of the company-specific risk be diversified away by investing in both Ecofibre and Summit Resources 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 Ecofibre and Summit Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecofibre and Summit Resources Limited, you can compare the effects of market volatilities on Ecofibre and Summit Resources 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 Ecofibre with a short position of Summit Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecofibre and Summit Resources.
Diversification Opportunities for Ecofibre and Summit Resources
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ecofibre and Summit is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ecofibre and Summit Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Resources and Ecofibre 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 Ecofibre are associated (or correlated) with Summit Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Resources has no effect on the direction of Ecofibre i.e., Ecofibre and Summit Resources go up and down completely randomly.
Pair Corralation between Ecofibre and Summit Resources
Assuming the 90 days trading horizon Ecofibre is expected to under-perform the Summit Resources. But the stock apears to be less risky and, when comparing its historical volatility, Ecofibre is 20.4 times less risky than Summit Resources. The stock trades about -0.22 of its potential returns per unit of risk. The Summit Resources Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 0.35 in Summit Resources Limited on August 30, 2024 and sell it today you would lose (0.05) from holding Summit Resources Limited or give up 14.29% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecofibre vs. Summit Resources Limited
Performance |
| Timeline |
| Ecofibre |
| Summit Resources |
Ecofibre and Summit Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecofibre and Summit Resources
The main advantage of trading using opposite Ecofibre and Summit Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecofibre position performs unexpectedly, Summit Resources 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 Summit Resources will offset losses from the drop in Summit Resources' long position.| Ecofibre vs. Aneka Tambang Tbk | Ecofibre vs. Australia and New | Ecofibre vs. National Australia Bank | Ecofibre vs. National Australia Bank |
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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