Correlation Between Western Metal and Emdoor Information

Can any of the company-specific risk be diversified away by investing in both Western Metal and Emdoor Information 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 Western Metal and Emdoor Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Metal Materials and Emdoor Information Co, you can compare the effects of market volatilities on Western Metal and Emdoor Information 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 Western Metal with a short position of Emdoor Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Emdoor Information.

Diversification Opportunities for Western Metal and Emdoor Information

0.71

Correlation Coefficient

Western Metal  Emdoor Information

Poor diversification

The 3 months correlation between Western and Emdoor is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Emdoor Information Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emdoor Information and Western Metal 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 Western Metal Materials are associated (or correlated) with Emdoor Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emdoor Information has no effect on the direction of Western Metal i.e., Western Metal and Emdoor Information go up and down completely randomly.

Pair Corralation between Western Metal and Emdoor Information

Assuming the 90 days trading horizon Western Metal is expected to generate 1.49 times less return on investment than Emdoor Information. But when comparing it to its historical volatility, Western Metal Materials is 1.23 times less risky than Emdoor Information. It trades about 0.1 of its potential returns per unit of risk. Emdoor Information Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,249  in Emdoor Information Co on September 28, 2024 and sell it today you would earn a total of  1,125  from holding Emdoor Information Co or generate 26.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Western Metal Materials  vs.  Emdoor Information Co

Western Metal Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Emdoor Information

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emdoor Information Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Emdoor Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Metal and Emdoor Information

The main advantage of trading using opposite Western Metal and Emdoor Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Metal position performs unexpectedly, Emdoor Information 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 Emdoor Information will offset losses from the drop in Emdoor Information's long position.

The idea behind Western Metal Materials and Emdoor Information Co 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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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.