Correlation Between Ethan Allen and Energy Focu

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

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

Diversification Opportunities for Ethan Allen and Energy Focu

0.42

Correlation Coefficient

Ethan Allen  Energy Focu

Very weak diversification

The 3 months correlation between Ethan and Energy is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and Energy Focu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Focu and Ethan Allen 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 Ethan Allen Interiors are associated (or correlated) with Energy Focu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Focu has no effect on the direction of Ethan Allen i.e., Ethan Allen and Energy Focu go up and down completely randomly.

Pair Corralation between Ethan Allen and Energy Focu

Considering the 90-day investment horizon Ethan Allen Interiors is expected to generate 0.54 times more return on investment than Energy Focu. However, Ethan Allen Interiors is 1.86 times less risky than Energy Focu. It trades about 0.01 of its potential returns per unit of risk. Energy Focu is currently generating about -0.06 per unit of risk. If you would invest  3,343  in Ethan Allen Interiors on January 26, 2024 and sell it today you would lose (2.00) from holding Ethan Allen Interiors or give up 0.06% of portfolio value over 90 days.

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

Ethan Allen Interiors  vs.  Energy Focu

Ethan Allen Interiors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ethan Allen Interiors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Ethan Allen may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Energy Focu

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Focu are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Energy Focu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethan Allen and Energy Focu

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

The idea behind Ethan Allen Interiors and Energy Focu 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.