Correlation Between CECO Environmental and Encore Wire

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

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

Diversification Opportunities for CECO Environmental and Encore Wire

0.75

Correlation Coefficient

CECO Environmental  Encore Wire

Poor diversification

The 3 months correlation between CECO and Encore is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and CECO Environmental 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 CECO Environmental Corp are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of CECO Environmental i.e., CECO Environmental and Encore Wire go up and down completely randomly.

Pair Corralation between CECO Environmental and Encore Wire

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 1.21 times more return on investment than Encore Wire. However, CECO Environmental is 1.21 times more volatile than Encore Wire. It trades about 0.12 of its potential returns per unit of risk. Encore Wire is currently generating about 0.07 per unit of risk. If you would invest  428.00  in CECO Environmental Corp on January 26, 2024 and sell it today you would earn a total of  1,999  from holding CECO Environmental Corp or generate 467.06% return on investment over 90 days.

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

CECO Environmental Corp  vs.  Encore Wire

CECO Environmental Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Encore Wire

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CECO Environmental and Encore Wire

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

The idea behind CECO Environmental Corp and Encore Wire 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.