Correlation Between Enersys and Encore Wire

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

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

Diversification Opportunities for Enersys and Encore Wire

-0.42

Correlation Coefficient

Enersys  Encore Wire

Very good diversification

The 3 months correlation between Enersys and Encore is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Enersys and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Enersys 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 Enersys 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 Enersys i.e., Enersys and Encore Wire go up and down completely randomly.

Pair Corralation between Enersys and Encore Wire

Considering the 90-day investment horizon Enersys is expected to generate 2.27 times less return on investment than Encore Wire. But when comparing it to its historical volatility, Enersys is 1.23 times less risky than Encore Wire. It trades about 0.04 of its potential returns per unit of risk. Encore Wire is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  13,394  in Encore Wire on January 24, 2024 and sell it today you would earn a total of  14,915  from holding Encore Wire or generate 111.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Enersys  vs.  Encore Wire

Enersys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enersys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Enersys is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Encore Wire

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 14 (%) 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 Enersys and Encore Wire

The main advantage of trading using opposite Enersys and Encore Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enersys 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 Enersys 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.