Correlation Between ECN Capital and Erdene Resource

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

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

Diversification Opportunities for ECN Capital and Erdene Resource

-0.14

Correlation Coefficient

ECN Capital  Erdene Resource

Good diversification

The 3 months correlation between ECN and Erdene is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding ECN Capital Corp and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve and ECN Capital 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 ECN Capital Corp are associated (or correlated) with Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of ECN Capital i.e., ECN Capital and Erdene Resource go up and down completely randomly.

Pair Corralation between ECN Capital and Erdene Resource

Assuming the 90 days trading horizon ECN Capital Corp is expected to under-perform the Erdene Resource. But the stock apears to be less risky and, when comparing its historical volatility, ECN Capital Corp is 1.6 times less risky than Erdene Resource. The stock trades about -0.05 of its potential returns per unit of risk. The Erdene Resource Development is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  69.00  in Erdene Resource Development on March 5, 2025 and sell it today you would earn a total of  32.00  from holding Erdene Resource Development or generate 46.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

ECN Capital Corp  vs.  Erdene Resource Development

ECN Capital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECN Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Erdene Resource Deve

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Erdene Resource Development are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Erdene Resource displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ECN Capital and Erdene Resource

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

The idea behind ECN Capital Corp and Erdene Resource Development 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.