Correlation Between ECGI Holdings and Align Technology

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

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

Diversification Opportunities for ECGI Holdings and Align Technology

0.19

Correlation Coefficient

ECGI Holdings  Align Technology

Average diversification

The 3 months correlation between ECGI and Align is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ECGI Holdings and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and ECGI Holdings 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 ECGI Holdings are associated (or correlated) with Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of ECGI Holdings i.e., ECGI Holdings and Align Technology go up and down completely randomly.

Pair Corralation between ECGI Holdings and Align Technology

Given the investment horizon of 90 days ECGI Holdings is expected to generate 8.21 times more return on investment than Align Technology. However, ECGI Holdings is 8.21 times more volatile than Align Technology. It trades about 0.08 of its potential returns per unit of risk. Align Technology is currently generating about -0.01 per unit of risk. If you would invest  1.08  in ECGI Holdings on January 24, 2024 and sell it today you would lose (0.82) from holding ECGI Holdings or give up 75.93% of portfolio value over 90 days.

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

ECGI Holdings  vs.  Align Technology

ECGI Holdings

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECGI Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, ECGI Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Align Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Align Technology displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ECGI Holdings and Align Technology

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

The idea behind ECGI Holdings and Align Technology 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.