Correlation Between Financial and ECN Capital

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

By analyzing existing cross correlation between Financial 15 Split and ECN Capital Corp, you can compare the effects of market volatilities on Financial and ECN Capital 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 Financial with a short position of ECN Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and ECN Capital.

Diversification Opportunities for Financial and ECN Capital

0.9

Correlation Coefficient

Financial  ECN Capital

Almost no diversification

The 3 months correlation between Financial and ECN is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and ECN Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECN Capital Corp and Financial 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 Financial 15 Split are associated (or correlated) with ECN Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECN Capital Corp has no effect on the direction of Financial i.e., Financial and ECN Capital go up and down completely randomly.

Pair Corralation between Financial and ECN Capital

Assuming the 90 days trading horizon Financial 15 Split is expected to generate 0.59 times more return on investment than ECN Capital. However, Financial 15 Split is 1.7 times less risky than ECN Capital. It trades about 0.33 of its potential returns per unit of risk. ECN Capital Corp is currently generating about -0.17 per unit of risk. If you would invest  913.00  in Financial 15 Split on September 12, 2024 and sell it today you would earn a total of  70.00  from holding Financial 15 Split or generate 7.67% return on investment over 90 days.

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

Financial 15 Split  vs.  ECN Capital Corp

Financial 15 Split

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

ECN Capital Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ECN Capital Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ECN Capital displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial and ECN Capital

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

The idea behind Financial 15 Split and ECN Capital 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.