Correlation Between E Media and RMB Holdings

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

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

Diversification Opportunities for E Media and RMB Holdings

-0.45

Correlation Coefficient

E Media  RMB Holdings

Very good diversification

The 3 months correlation between EMH and RMB is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding E Media Holdings and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB Holdings and E Media 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 Media Holdings are associated (or correlated) with RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of E Media i.e., E Media and RMB Holdings go up and down completely randomly.

Pair Corralation between E Media and RMB Holdings

Assuming the 90 days trading horizon E Media Holdings is expected to generate 16.77 times more return on investment than RMB Holdings. However, E Media is 16.77 times more volatile than RMB Holdings. It trades about 0.04 of its potential returns per unit of risk. RMB Holdings is currently generating about 0.01 per unit of risk. If you would invest  40,096  in E Media Holdings on September 16, 2024 and sell it today you would lose (5,096) from holding E Media Holdings or give up 12.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

E Media Holdings  vs.  RMB Holdings

E Media Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

RMB Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, RMB Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E Media and RMB Holdings

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

The idea behind E Media Holdings and RMB Holdings 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.