Correlation Between Embassy Office and ITI

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

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

Diversification Opportunities for Embassy Office and ITI

-0.48

Correlation Coefficient

Embassy Office  ITI

Very good diversification

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

Pair Corralation between Embassy Office and ITI

Assuming the 90 days trading horizon Embassy Office Parks is expected to under-perform the ITI. But the stock apears to be less risky and, when comparing its historical volatility, Embassy Office Parks is 3.87 times less risky than ITI. The stock trades about -0.05 of its potential returns per unit of risk. The ITI Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  30,260  in ITI Limited on September 2, 2024 and sell it today you would lose (1,597) from holding ITI Limited or give up 5.28% of portfolio value over 90 days.

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

Embassy Office Parks  vs.  ITI Limited

Embassy Office Parks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embassy Office Parks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Embassy Office is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

ITI Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITI Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ITI is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Embassy Office and ITI

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

The idea behind Embassy Office Parks and ITI Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.