Correlation Between East West and Megawide Construction

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

By analyzing existing cross correlation between East West Banking and Megawide Construction Corp, you can compare the effects of market volatilities on East West and Megawide Construction 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 East West with a short position of Megawide Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Megawide Construction.

Diversification Opportunities for East West and Megawide Construction

0.15

Correlation Coefficient

East West  Megawide Construction

Average diversification

The 3 months correlation between East and Megawide is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding East West Banking and Megawide Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megawide Construction and East West 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 East West Banking are associated (or correlated) with Megawide Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megawide Construction has no effect on the direction of East West i.e., East West and Megawide Construction go up and down completely randomly.

Pair Corralation between East West and Megawide Construction

Assuming the 90 days trading horizon East West is expected to generate 1.64 times less return on investment than Megawide Construction. But when comparing it to its historical volatility, East West Banking is 1.28 times less risky than Megawide Construction. It trades about 0.14 of its potential returns per unit of risk. Megawide Construction Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,060  in Megawide Construction Corp on September 14, 2024 and sell it today you would earn a total of  730.00  from holding Megawide Construction Corp or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	47.62%
Values	Daily Returns

East West Banking  vs.  Megawide Construction Corp

East West Banking

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Banking are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, East West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Megawide Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Megawide Construction Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Megawide Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with East West and Megawide Construction

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

The idea behind East West Banking and Megawide Construction Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.