Correlation Between Egyptian Iron and Contact Financial

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

By analyzing existing cross correlation between Egyptian Iron Steel and Contact Financial Holding, you can compare the effects of market volatilities on Egyptian Iron and Contact Financial 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 Egyptian Iron with a short position of Contact Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Egyptian Iron and Contact Financial.

Diversification Opportunities for Egyptian Iron and Contact Financial

0.2

Correlation Coefficient

Egyptian Iron  Contact Financial

Modest diversification

The 3 months correlation between Egyptian and Contact is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Egyptian Iron Steel and Contact Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contact Financial Holding and Egyptian Iron 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 Egyptian Iron Steel are associated (or correlated) with Contact Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contact Financial Holding has no effect on the direction of Egyptian Iron i.e., Egyptian Iron and Contact Financial go up and down completely randomly.

Pair Corralation between Egyptian Iron and Contact Financial

Assuming the 90 days trading horizon Egyptian Iron Steel is expected to generate 1.22 times more return on investment than Contact Financial. However, Egyptian Iron is 1.22 times more volatile than Contact Financial Holding. It trades about 0.18 of its potential returns per unit of risk. Contact Financial Holding is currently generating about -0.03 per unit of risk. If you would invest  3,576  in Egyptian Iron Steel on September 17, 2024 and sell it today you would earn a total of  1,444  from holding Egyptian Iron Steel or generate 40.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.11%
Values	Daily Returns

Egyptian Iron Steel  vs.  Contact Financial Holding

Egyptian Iron Steel

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Egyptian Iron Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Egyptian Iron reported solid returns over the last few months and may actually be approaching a breakup point.

Contact Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Contact Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Contact Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Egyptian Iron and Contact Financial

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

The idea behind Egyptian Iron Steel and Contact Financial Holding 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.