Correlation Between Metallurgical and Eastern Communications

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

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

Diversification Opportunities for Metallurgical and Eastern Communications

0.93

Correlation Coefficient

Metallurgical  Eastern Communications

Almost no diversification

The 3 months correlation between Metallurgical and Eastern is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Metallurgical of and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications and Metallurgical 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 Metallurgical of are associated (or correlated) with Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of Metallurgical i.e., Metallurgical and Eastern Communications go up and down completely randomly.

Pair Corralation between Metallurgical and Eastern Communications

Assuming the 90 days trading horizon Metallurgical of is expected to under-perform the Eastern Communications. In addition to that, Metallurgical is 1.33 times more volatile than Eastern Communications Co. It trades about -0.03 of its total potential returns per unit of risk. Eastern Communications Co is currently generating about 0.13 per unit of volatility. If you would invest  41.00  in Eastern Communications Co on September 15, 2024 and sell it today you would earn a total of  2.00  from holding Eastern Communications Co or generate 4.88% return on investment over 90 days.

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

Metallurgical of  vs.  Eastern Communications Co

Metallurgical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metallurgical of are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Metallurgical sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastern Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Communications Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastern Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metallurgical and Eastern Communications

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

The idea behind Metallurgical of and Eastern Communications 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.