Correlation Between Eagle Point and Entergy Arkansas

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

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

Diversification Opportunities for Eagle Point and Entergy Arkansas

-0.17

Correlation Coefficient

Eagle Point  Entergy Arkansas

Good diversification

The 3 months correlation between Eagle and Entergy is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Point Credit and Entergy Arkansas LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Arkansas LLC and Eagle Point 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 Eagle Point Credit are associated (or correlated) with Entergy Arkansas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Arkansas LLC has no effect on the direction of Eagle Point i.e., Eagle Point and Entergy Arkansas go up and down completely randomly.

Pair Corralation between Eagle Point and Entergy Arkansas

Given the investment horizon of 90 days Eagle Point Credit is expected to generate 0.53 times more return on investment than Entergy Arkansas. However, Eagle Point Credit is 1.87 times less risky than Entergy Arkansas. It trades about 0.04 of its potential returns per unit of risk. Entergy Arkansas LLC is currently generating about -0.12 per unit of risk. If you would invest  2,434  in Eagle Point Credit on September 18, 2024 and sell it today you would earn a total of  21.00  from holding Eagle Point Credit or generate 0.86% return on investment over 90 days.

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

Eagle Point Credit  vs.  Entergy Arkansas LLC

Eagle Point Credit

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Point Credit are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Eagle Point is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Entergy Arkansas LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Arkansas LLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Entergy Arkansas is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Eagle Point and Entergy Arkansas

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

The idea behind Eagle Point Credit and Entergy Arkansas LLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.