Correlation Between New Economy and Eventide Gilead

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

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

Diversification Opportunities for New Economy and Eventide Gilead

0.72

Correlation Coefficient

New Economy  Eventide Gilead

Poor diversification

The 3 months correlation between New and Eventide is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Eventide Gilead Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eventide Gilead and New Economy 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 New Economy Fund are associated (or correlated) with Eventide Gilead. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eventide Gilead has no effect on the direction of New Economy i.e., New Economy and Eventide Gilead go up and down completely randomly.

Pair Corralation between New Economy and Eventide Gilead

Assuming the 90 days horizon New Economy is expected to generate 1.72 times less return on investment than Eventide Gilead. In addition to that, New Economy is 1.12 times more volatile than Eventide Gilead Fund. It trades about 0.02 of its total potential returns per unit of risk. Eventide Gilead Fund is currently generating about 0.04 per unit of volatility. If you would invest  4,957  in Eventide Gilead Fund on September 19, 2024 and sell it today you would earn a total of  228.00  from holding Eventide Gilead Fund or generate 4.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

New Economy Fund  vs.  Eventide Gilead Fund

New Economy Fund

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days New Economy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, New Economy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eventide Gilead

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Eventide Gilead Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Eventide Gilead is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New Economy and Eventide Gilead

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

The idea behind New Economy Fund and Eventide Gilead Fund 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.