Correlation Between Elco and Hamama

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

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

Diversification Opportunities for Elco and Hamama

-0.69

Correlation Coefficient

Elco  Hamama

Excellent diversification

The 3 months correlation between Elco and Hamama is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Elco and Hamama in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamama and Elco 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 Elco are associated (or correlated) with Hamama. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamama has no effect on the direction of Elco i.e., Elco and Hamama go up and down completely randomly.

Pair Corralation between Elco and Hamama

Assuming the 90 days trading horizon Elco is expected to generate 1.06 times more return on investment than Hamama. However, Elco is 1.06 times more volatile than Hamama. It trades about 0.22 of its potential returns per unit of risk. Hamama is currently generating about -0.08 per unit of risk. If you would invest  974,635  in Elco on September 29, 2024 and sell it today you would earn a total of  484,365  from holding Elco or generate 49.7% return on investment over 90 days.

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

Elco  vs.  Hamama

Elco

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elco are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elco sustained solid returns over the last few months and may actually be approaching a breakup point.

Hamama

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hamama has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Elco and Hamama

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

The idea behind Elco and Hamama 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.