Correlation Between Stagwell and Encore Wire

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

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

Diversification Opportunities for Stagwell and Encore Wire

Weak diversification

The 3 months correlation between Stagwell and Encore is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Stagwell and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Stagwell 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 Stagwell 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 Stagwell i.e., Stagwell and Encore Wire go up and down completely randomly.

Pair Corralation between Stagwell and Encore Wire

Given the investment horizon of 90 days Stagwell is expected to under-perform the Encore Wire. In addition to that, Stagwell is 1.18 times more volatile than Encore Wire. It trades about -0.01 of its total potential returns per unit of risk. Encore Wire is currently generating about 0.05 per unit of volatility. If you would invest  10,287  in Encore Wire on July 2, 2023 and sell it today you would earn a total of  7,959  from holding Encore Wire or generate 77.37% return on investment over 90 days.

Stagwell  vs.  Encore Wire

Stagwell

Stagwell Performance

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Over the last 90 days Stagwell has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in October 2023. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Encore Wire

Encore Performance

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Over the last 90 days Encore Wire has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Encore Wire is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Stagwell and Encore Wire

The main advantage of trading using opposite Stagwell and Encore Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stagwell 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 Stagwell 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.