Correlation Between South West and EMCORE

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

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

Diversification Opportunities for South West and EMCORE

0.64

Correlation Coefficient

South West  EMCORE

Poor diversification

The 3 months correlation between South and EMCORE is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding South West Pinnacle and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE and South West 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 South West Pinnacle are associated (or correlated) with EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of South West i.e., South West and EMCORE go up and down completely randomly.

Pair Corralation between South West and EMCORE

Assuming the 90 days trading horizon South West Pinnacle is expected to under-perform the EMCORE. But the stock apears to be less risky and, when comparing its historical volatility, South West Pinnacle is 2.06 times less risky than EMCORE. The stock trades about -0.11 of its potential returns per unit of risk. The EMCORE is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  459.00  in EMCORE on February 6, 2024 and sell it today you would lose (194.00) from holding EMCORE or give up 42.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.93%
Values	Daily Returns

South West Pinnacle  vs.  EMCORE

South West Pinnacle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South West Pinnacle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

EMCORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with South West and EMCORE

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

The idea behind South West Pinnacle and EMCORE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.