Correlation Between AE and EOS

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

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

Diversification Opportunities for AE and EOS

0.87

Correlation Coefficient

AE  EOS

Very poor diversification

The 3 months correlation between AE and EOS is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding AE and EOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOS and AE 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 AE are associated (or correlated) with EOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOS has no effect on the direction of AE i.e., AE and EOS go up and down completely randomly.

Pair Corralation between AE and EOS

Assuming the 90 days horizon AE is expected to generate 1.89 times less return on investment than EOS. In addition to that, AE is 1.37 times more volatile than EOS. It trades about 0.1 of its total potential returns per unit of risk. EOS is currently generating about 0.25 per unit of volatility. If you would invest  45.00  in EOS on September 2, 2024 and sell it today you would earn a total of  49.00  from holding EOS or generate 108.89% return on investment over 90 days.

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

AE  vs.  EOS

AE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AE exhibited solid returns over the last few months and may actually be approaching a breakup point.

EOS

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EOS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, EOS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AE and EOS

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

The idea behind AE and EOS 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 Transaction History module to view history of all your transactions and understand their impact on performance.