Correlation Between ESS and Highstreet
Can any of the company-specific risk be diversified away by investing in both ESS and Highstreet 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 ESS and Highstreet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESS and Highstreet, you can compare the effects of market volatilities on ESS and Highstreet 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 ESS with a short position of Highstreet. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESS and Highstreet.
Diversification Opportunities for ESS and Highstreet
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between ESS and Highstreet is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ESS and Highstreet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highstreet and ESS 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 ESS are associated (or correlated) with Highstreet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highstreet has no effect on the direction of ESS i.e., ESS and Highstreet go up and down completely randomly.
Pair Corralation between ESS and Highstreet
Assuming the 90 days trading horizon ESS is expected to generate 1.33 times less return on investment than Highstreet. In addition to that, ESS is 1.76 times more volatile than Highstreet. It trades about 0.11 of its total potential returns per unit of risk. Highstreet is currently generating about 0.25 per unit of volatility. If you would invest 130.00 in Highstreet on August 28, 2024 and sell it today you would earn a total of 35.00 from holding Highstreet or generate 26.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ESS vs. Highstreet
Performance |
| Timeline |
| ESS |
| Highstreet |
ESS and Highstreet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ESS and Highstreet
The main advantage of trading using opposite ESS and Highstreet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESS position performs unexpectedly, Highstreet 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 Highstreet will offset losses from the drop in Highstreet's long position.The idea behind ESS and Highstreet 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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