Correlation Between New World and Eco Depot
Can any of the company-specific risk be diversified away by investing in both New World and Eco Depot 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 New World and Eco Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Development and Eco Depot, you can compare the effects of market volatilities on New World and Eco Depot 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 New World with a short position of Eco Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Eco Depot.
Diversification Opportunities for New World and Eco Depot
Poor diversification
The 3 months correlation between New and Eco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding New World Development and Eco Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Depot and New World 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 New World Development are associated (or correlated) with Eco Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Depot has no effect on the direction of New World i.e., New World and Eco Depot go up and down completely randomly.
Pair Corralation between New World and Eco Depot
Assuming the 90 days horizon New World Development is expected to under-perform the Eco Depot. But the pink sheet apears to be less risky and, when comparing its historical volatility, New World Development is 6.28 times less risky than Eco Depot. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Eco Depot is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 20.00 in Eco Depot on September 2, 2024 and sell it today you would lose (16.40) from holding Eco Depot or give up 82.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Development vs. Eco Depot
Performance |
| Timeline |
| New World Development |
| Eco Depot |
New World and Eco Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and Eco Depot
The main advantage of trading using opposite New World and Eco Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, Eco Depot 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 Eco Depot will offset losses from the drop in Eco Depot's long position.The idea behind New World Development and Eco Depot 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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