Correlation Between Enea AB and Terranet

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

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

Diversification Opportunities for Enea AB and Terranet

-0.67

Correlation Coefficient

Enea AB  Terranet

Excellent diversification

The 3 months correlation between Enea and Terranet is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Enea AB and Terranet AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terranet AB and Enea AB 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 Enea AB are associated (or correlated) with Terranet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terranet AB has no effect on the direction of Enea AB i.e., Enea AB and Terranet go up and down completely randomly.

Pair Corralation between Enea AB and Terranet

Assuming the 90 days trading horizon Enea AB is expected to generate 0.61 times more return on investment than Terranet. However, Enea AB is 1.64 times less risky than Terranet. It trades about -0.02 of its potential returns per unit of risk. Terranet AB is currently generating about -0.04 per unit of risk. If you would invest  11,520  in Enea AB on February 6, 2024 and sell it today you would lose (5,040) from holding Enea AB or give up 43.75% of portfolio value over 90 days.

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

Enea AB  vs.  Terranet AB

Enea AB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enea AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Enea AB may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Terranet AB

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Terranet AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Terranet sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enea AB and Terranet

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

The idea behind Enea AB and Terranet AB 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.