Correlation Between Elite Material and Solar Applied

Can any of the company-specific risk be diversified away by investing in both Elite Material and Solar Applied 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 Elite Material and Solar Applied into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Elite Material and Solar Applied

-0.01

Correlation Coefficient

Elite Material  Solar Applied

Good diversification

The 3 months correlation between Elite and Solar is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and Solar Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Applied Materials and Elite Material 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 Elite Material Co are associated (or correlated) with Solar Applied. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Applied Materials has no effect on the direction of Elite Material i.e., Elite Material and Solar Applied go up and down completely randomly.

Pair Corralation between Elite Material and Solar Applied

Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.02 times more return on investment than Solar Applied. However, Elite Material is 1.02 times more volatile than Solar Applied Materials. It trades about -0.03 of its potential returns per unit of risk. Solar Applied Materials is currently generating about -0.05 per unit of risk. If you would invest  50,000  in Elite Material Co on September 3, 2024 and sell it today you would lose (3,150) from holding Elite Material Co or give up 6.3% of portfolio value over 90 days.

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

Elite Material Co  vs.  Solar Applied Materials

Elite Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elite Material Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Elite Material is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Solar Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Elite Material and Solar Applied

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

The idea behind Elite Material Co and Solar Applied Materials 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.