Correlation Between Macys and Electronic Control

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Can any of the company-specific risk be diversified away by investing in both Macys and Electronic Control 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 Macys and Electronic Control into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Macys Inc and Electronic Control Security, you can compare the effects of market volatilities on Macys and Electronic Control 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 Macys with a short position of Electronic Control. Check out your portfolio center. Please also check ongoing floating volatility patterns of Macys and Electronic Control.

Diversification Opportunities for Macys and Electronic Control

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Macys and Electronic is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and Electronic Control Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Control and Macys 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 Macys Inc are associated (or correlated) with Electronic Control. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Control has no effect on the direction of Macys i.e., Macys and Electronic Control go up and down completely randomly.

Pair Corralation between Macys and Electronic Control

Taking into account the 90-day investment horizon Macys is expected to generate 13.74 times less return on investment than Electronic Control. But when comparing it to its historical volatility, Macys Inc is 4.67 times less risky than Electronic Control. It trades about 0.01 of its potential returns per unit of risk. Electronic Control Security is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Electronic Control Security on December 29, 2023 and sell it today you would lose (9.65) from holding Electronic Control Security or give up 96.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Macys Inc  vs.  Electronic Control Security

 Performance 
       Timeline  
Macys Inc 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Macys Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Macys is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
Electronic Control 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Control Security are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Electronic Control unveiled solid returns over the last few months and may actually be approaching a breakup point.

Macys and Electronic Control Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Macys and Electronic Control

The main advantage of trading using opposite Macys and Electronic Control positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Macys position performs unexpectedly, Electronic Control 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 Electronic Control will offset losses from the drop in Electronic Control's long position.
The idea behind Macys Inc and Electronic Control Security 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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