Correlation Between European Residential and Pure Energy

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

By analyzing existing cross correlation between European Residential Real and Pure Energy Minerals, you can compare the effects of market volatilities on European Residential and Pure Energy 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 European Residential with a short position of Pure Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Pure Energy.

Diversification Opportunities for European Residential and Pure Energy

0.39

Correlation Coefficient

European Residential  Pure Energy

Weak diversification

The 3 months correlation between European and Pure is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Pure Energy Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Energy Minerals and European Residential 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 European Residential Real are associated (or correlated) with Pure Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Energy Minerals has no effect on the direction of European Residential i.e., European Residential and Pure Energy go up and down completely randomly.

Pair Corralation between European Residential and Pure Energy

Assuming the 90 days trading horizon European Residential Real is expected to generate 0.34 times more return on investment than Pure Energy. However, European Residential Real is 2.96 times less risky than Pure Energy. It trades about 0.2 of its potential returns per unit of risk. Pure Energy Minerals is currently generating about -0.01 per unit of risk. If you would invest  226.00  in European Residential Real on September 3, 2024 and sell it today you would earn a total of  154.00  from holding European Residential Real or generate 68.14% return on investment over 90 days.

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

European Residential Real  vs.  Pure Energy Minerals

European Residential Real

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pure Energy Minerals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Energy Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Pure Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Pure Energy

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

The idea behind European Residential Real and Pure Energy Minerals 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.