Correlation Between Eastern and Trupanion

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

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

Diversification Opportunities for Eastern and Trupanion

-0.41

Correlation Coefficient

Eastern  Trupanion

Very good diversification

The 3 months correlation between Eastern and Trupanion is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Trupanion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trupanion and Eastern 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 Eastern Co are associated (or correlated) with Trupanion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trupanion has no effect on the direction of Eastern i.e., Eastern and Trupanion go up and down completely randomly.

Pair Corralation between Eastern and Trupanion

Considering the 90-day investment horizon Eastern Co is expected to under-perform the Trupanion. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Co is 1.33 times less risky than Trupanion. The stock trades about -0.04 of its potential returns per unit of risk. The Trupanion is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,581  in Trupanion on September 18, 2024 and sell it today you would earn a total of  834.00  from holding Trupanion or generate 18.21% return on investment over 90 days.

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

Eastern Co  vs.  Trupanion

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Trupanion

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trupanion are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Trupanion reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern and Trupanion

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

The idea behind Eastern Co and Trupanion 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.