Correlation Between Electra and Baran

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

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

Diversification Opportunities for Electra and Baran

0.93

Correlation Coefficient

Electra  Baran

Almost no diversification

The 3 months correlation between Electra and Baran is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Electra and Baran Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baran Group and Electra 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 are associated (or correlated) with Baran. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baran Group has no effect on the direction of Electra i.e., Electra and Baran go up and down completely randomly.

Pair Corralation between Electra and Baran

Assuming the 90 days trading horizon Electra is expected to generate 0.87 times more return on investment than Baran. However, Electra is 1.15 times less risky than Baran. It trades about 0.2 of its potential returns per unit of risk. Baran Group is currently generating about 0.1 per unit of risk. If you would invest  18,767,000  in Electra on September 27, 2024 and sell it today you would earn a total of  1,793,000  from holding Electra or generate 9.55% return on investment over 90 days.

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

Electra  vs.  Baran Group

Electra

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Electra are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Electra sustained solid returns over the last few months and may actually be approaching a breakup point.

Baran Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baran Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baran sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electra and Baran

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

The idea behind Electra and Baran Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.