Correlation Between TOHOKU EL and Encavis AG

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

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

Diversification Opportunities for TOHOKU EL and Encavis AG

0.01

Correlation Coefficient

TOHOKU EL  Encavis AG

Significant diversification

The 3 months correlation between TOHOKU and Encavis is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding TOHOKU EL PWR and Encavis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encavis AG and TOHOKU EL 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 TOHOKU EL PWR are associated (or correlated) with Encavis AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encavis AG has no effect on the direction of TOHOKU EL i.e., TOHOKU EL and Encavis AG go up and down completely randomly.

Pair Corralation between TOHOKU EL and Encavis AG

Assuming the 90 days horizon TOHOKU EL PWR is expected to under-perform the Encavis AG. In addition to that, TOHOKU EL is 8.53 times more volatile than Encavis AG. It trades about -0.07 of its total potential returns per unit of risk. Encavis AG is currently generating about 0.09 per unit of volatility. If you would invest  1,704  in Encavis AG on September 12, 2024 and sell it today you would earn a total of  36.00  from holding Encavis AG or generate 2.11% return on investment over 90 days.

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

TOHOKU EL PWR  vs.  Encavis AG

TOHOKU EL PWR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOHOKU EL PWR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Encavis AG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encavis AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encavis AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TOHOKU EL and Encavis AG

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

The idea behind TOHOKU EL PWR and Encavis AG 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.