Correlation Between Echo Investment and Road Studio

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

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

Diversification Opportunities for Echo Investment and Road Studio

-0.48

Correlation Coefficient

Echo Investment  Road Studio

Very good diversification

The 3 months correlation between Echo and Road is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Echo Investment SA and Road Studio SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Road Studio SA and Echo Investment 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 Echo Investment SA are associated (or correlated) with Road Studio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Road Studio SA has no effect on the direction of Echo Investment i.e., Echo Investment and Road Studio go up and down completely randomly.

Pair Corralation between Echo Investment and Road Studio

Assuming the 90 days trading horizon Echo Investment SA is expected to generate 0.65 times more return on investment than Road Studio. However, Echo Investment SA is 1.53 times less risky than Road Studio. It trades about 0.12 of its potential returns per unit of risk. Road Studio SA is currently generating about -0.16 per unit of risk. If you would invest  423.00  in Echo Investment SA on September 13, 2024 and sell it today you would earn a total of  62.00  from holding Echo Investment SA or generate 14.66% return on investment over 90 days.

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

Echo Investment SA  vs.  Road Studio SA

Echo Investment SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Echo Investment SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Echo Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Road Studio SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Road Studio SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Echo Investment and Road Studio

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

The idea behind Echo Investment SA and Road Studio SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.