Correlation Between Ridley and Ecofibre

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

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

Diversification Opportunities for Ridley and Ecofibre

0.73

Correlation Coefficient

Ridley  Ecofibre

Poor diversification

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

Pair Corralation between Ridley and Ecofibre

Assuming the 90 days trading horizon Ridley is expected to generate 3.81 times less return on investment than Ecofibre. But when comparing it to its historical volatility, Ridley is 5.38 times less risky than Ecofibre. It trades about 0.22 of its potential returns per unit of risk. Ecofibre is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2.10  in Ecofibre on August 31, 2024 and sell it today you would earn a total of  1.90  from holding Ecofibre or generate 90.48% return on investment over 90 days.

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

Ridley  vs.  Ecofibre

Ridley

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ridley are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Ridley unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ecofibre

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecofibre are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Ecofibre unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ridley and Ecofibre

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

The idea behind Ridley and Ecofibre 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.