Correlation Between ENTERPRISE and East Africa

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Can any of the company-specific risk be diversified away by investing in both ENTERPRISE and East Africa 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 ENTERPRISE and East Africa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ENTERPRISE PRODS OPER and East Africa Metals, you can compare the effects of market volatilities on ENTERPRISE and East Africa 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 ENTERPRISE with a short position of East Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of ENTERPRISE and East Africa.

Diversification Opportunities for ENTERPRISE and East Africa

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between ENTERPRISE and East is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding ENTERPRISE PRODS OPER and East Africa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Africa Metals and ENTERPRISE 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 ENTERPRISE PRODS OPER are associated (or correlated) with East Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Africa Metals has no effect on the direction of ENTERPRISE i.e., ENTERPRISE and East Africa go up and down completely randomly.

Pair Corralation between ENTERPRISE and East Africa

Assuming the 90 days trading horizon ENTERPRISE is expected to generate 27.59 times less return on investment than East Africa. But when comparing it to its historical volatility, ENTERPRISE PRODS OPER is 15.93 times less risky than East Africa. It trades about 0.04 of its potential returns per unit of risk. East Africa Metals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  6.26  in East Africa Metals on September 1, 2024 and sell it today you would earn a total of  4.74  from holding East Africa Metals or generate 75.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy80.31%
ValuesDaily Returns

ENTERPRISE PRODS OPER  vs.  East Africa Metals

 Performance 
       Timeline  
ENTERPRISE PRODS OPER 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days ENTERPRISE PRODS OPER has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ENTERPRISE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
East Africa Metals 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ENTERPRISE and East Africa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ENTERPRISE and East Africa

The main advantage of trading using opposite ENTERPRISE and East Africa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ENTERPRISE position performs unexpectedly, East Africa 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 East Africa will offset losses from the drop in East Africa's long position.
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The idea behind ENTERPRISE PRODS OPER and East Africa Metals 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.
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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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