Correlation Between Electra Battery and Clearwater Paper

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

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

Diversification Opportunities for Electra Battery and Clearwater Paper

0.66

Correlation Coefficient

Electra Battery  Clearwater Paper

Poor diversification

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

Pair Corralation between Electra Battery and Clearwater Paper

Given the investment horizon of 90 days Electra Battery Materials is expected to under-perform the Clearwater Paper. In addition to that, Electra Battery is 1.69 times more volatile than Clearwater Paper. It trades about -0.1 of its total potential returns per unit of risk. Clearwater Paper is currently generating about -0.07 per unit of volatility. If you would invest  3,106  in Clearwater Paper on September 4, 2024 and sell it today you would lose (390.00) from holding Clearwater Paper or give up 12.56% of portfolio value over 90 days.

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

Electra Battery Materials  vs.  Clearwater Paper

Electra Battery Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Clearwater Paper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearwater Paper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Electra Battery and Clearwater Paper

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

The idea behind Electra Battery Materials and Clearwater Paper 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.

Check out your portfolio center.

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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.