Correlation Between Contact Financial and Ezz Steel

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

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

Diversification Opportunities for Contact Financial and Ezz Steel

0.66

Correlation Coefficient

Contact Financial  Ezz Steel

Poor diversification

The 3 months correlation between Contact and Ezz is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Contact Financial Holding and Ezz Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ezz Steel and Contact Financial 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 Contact Financial Holding are associated (or correlated) with Ezz Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ezz Steel has no effect on the direction of Contact Financial i.e., Contact Financial and Ezz Steel go up and down completely randomly.

Pair Corralation between Contact Financial and Ezz Steel

Assuming the 90 days trading horizon Contact Financial Holding is expected to generate 0.45 times more return on investment than Ezz Steel. However, Contact Financial Holding is 2.22 times less risky than Ezz Steel. It trades about -0.33 of its potential returns per unit of risk. Ezz Steel is currently generating about -0.18 per unit of risk. If you would invest  497.00  in Contact Financial Holding on September 18, 2024 and sell it today you would lose (29.00) from holding Contact Financial Holding or give up 5.84% of portfolio value over 90 days.

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

Contact Financial Holding  vs.  Ezz Steel

Contact Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Contact Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ezz Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ezz Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ezz Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Contact Financial and Ezz Steel

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

The idea behind Contact Financial Holding and Ezz Steel 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.