Correlation Between E L and Richards Packaging

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

By analyzing existing cross correlation between E L Financial Corp and Richards Packaging Income, you can compare the effects of market volatilities on E L and Richards Packaging 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 E L with a short position of Richards Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of E L and Richards Packaging.

Diversification Opportunities for E L and Richards Packaging

-0.7

Correlation Coefficient

E L  Richards Packaging

Excellent diversification

The 3 months correlation between ELF and Richards is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding E L Financial Corp and Richards Packaging Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richards Packaging Income and E L 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 E L Financial Corp are associated (or correlated) with Richards Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richards Packaging Income has no effect on the direction of E L i.e., E L and Richards Packaging go up and down completely randomly.

Pair Corralation between E L and Richards Packaging

Assuming the 90 days trading horizon E L Financial Corp is expected to generate 1.28 times more return on investment than Richards Packaging. However, E L is 1.28 times more volatile than Richards Packaging Income. It trades about 0.14 of its potential returns per unit of risk. Richards Packaging Income is currently generating about 0.02 per unit of risk. If you would invest  132,619  in E L Financial Corp on September 4, 2024 and sell it today you would earn a total of  14,881  from holding E L Financial Corp or generate 11.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

E L Financial Corp  vs.  Richards Packaging Income

E L Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Richards Packaging Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Richards Packaging Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Richards Packaging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with E L and Richards Packaging

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

The idea behind E L Financial Corp and Richards Packaging Income 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.