Correlation Between ODP and EBay
Can any of the company-specific risk be diversified away by investing in both ODP and EBay 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 ODP and EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The ODP and eBay Inc, you can compare the effects of market volatilities on ODP and EBay 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 ODP with a short position of EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of ODP and EBay.
Diversification Opportunities for ODP and EBay
Pay attention - limited upside
The 3 months correlation between ODP and EBay is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding The ODP and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc and ODP 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 The ODP are associated (or correlated) with EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of ODP i.e., ODP and EBay go up and down completely randomly.
Pair Corralation between ODP and EBay
Assuming the 90 days trading horizon ODP is expected to generate 5.51 times less return on investment than EBay. But when comparing it to its historical volatility, The ODP is 3.55 times less risky than EBay. It trades about 0.05 of its potential returns per unit of risk. eBay Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 78,051 in eBay Inc on September 14, 2024 and sell it today you would earn a total of 50,149 from holding eBay Inc or generate 64.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The ODP vs. eBay Inc
Performance |
| Timeline |
| ODP |
| eBay Inc |
ODP and EBay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ODP and EBay
The main advantage of trading using opposite ODP and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ODP position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.The idea behind The ODP and eBay Inc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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