Correlation Between Earth Tech and Steel Public

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

By analyzing existing cross correlation between Earth Tech Environment and The Steel Public, you can compare the effects of market volatilities on Earth Tech and Steel Public 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 Earth Tech with a short position of Steel Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Earth Tech and Steel Public.

Diversification Opportunities for Earth Tech and Steel Public

0.73

Correlation Coefficient

Earth Tech  Steel Public

Poor diversification

The 3 months correlation between Earth and Steel is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Earth Tech Environment and The Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Public and Earth Tech 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 Earth Tech Environment are associated (or correlated) with Steel Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Public has no effect on the direction of Earth Tech i.e., Earth Tech and Steel Public go up and down completely randomly.

Pair Corralation between Earth Tech and Steel Public

Assuming the 90 days trading horizon Earth Tech Environment is expected to generate 1.0 times more return on investment than Steel Public. However, Earth Tech is 1.0 times more volatile than The Steel Public. It trades about -0.08 of its potential returns per unit of risk. The Steel Public is currently generating about -0.16 per unit of risk. If you would invest  228.00  in Earth Tech Environment on September 13, 2024 and sell it today you would lose (35.00) from holding Earth Tech Environment or give up 15.35% of portfolio value over 90 days.

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

Earth Tech Environment  vs.  The Steel Public

Earth Tech Environment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earth Tech Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Earth Tech and Steel Public

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

The idea behind Earth Tech Environment and The Steel Public 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.