Correlation Between Eventide Limited-term and Eventide Healthcare
Can any of the company-specific risk be diversified away by investing in both Eventide Limited-term and Eventide Healthcare 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 Eventide Limited-term and Eventide Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eventide Limited Term Bond and Eventide Healthcare Life, you can compare the effects of market volatilities on Eventide Limited-term and Eventide Healthcare 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 Eventide Limited-term with a short position of Eventide Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eventide Limited-term and Eventide Healthcare.
Diversification Opportunities for Eventide Limited-term and Eventide Healthcare
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Eventide and Eventide is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Eventide Limited Term Bond and Eventide Healthcare Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eventide Healthcare Life and Eventide Limited-term 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 Eventide Limited Term Bond are associated (or correlated) with Eventide Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eventide Healthcare Life has no effect on the direction of Eventide Limited-term i.e., Eventide Limited-term and Eventide Healthcare go up and down completely randomly.
Pair Corralation between Eventide Limited-term and Eventide Healthcare
Assuming the 90 days horizon Eventide Limited Term Bond is expected to generate 0.08 times more return on investment than Eventide Healthcare. However, Eventide Limited Term Bond is 12.45 times less risky than Eventide Healthcare. It trades about 0.07 of its potential returns per unit of risk. Eventide Healthcare Life is currently generating about -0.05 per unit of risk. If you would invest 1,001 in Eventide Limited Term Bond on August 29, 2024 and sell it today you would earn a total of 2.00 from holding Eventide Limited Term Bond or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eventide Limited Term Bond vs. Eventide Healthcare Life
Performance |
| Timeline |
| Eventide Limited Term |
| Eventide Healthcare Life |
Eventide Limited-term and Eventide Healthcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eventide Limited-term and Eventide Healthcare
The main advantage of trading using opposite Eventide Limited-term and Eventide Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eventide Limited-term position performs unexpectedly, Eventide Healthcare 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 Eventide Healthcare will offset losses from the drop in Eventide Healthcare's long position.The idea behind Eventide Limited Term Bond and Eventide Healthcare Life 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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