Correlation Between Wafer Works and Evergreen Steel

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

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

Diversification Opportunities for Wafer Works and Evergreen Steel

-0.52

Correlation Coefficient

Wafer Works  Evergreen Steel

Excellent diversification

The 3 months correlation between Wafer and Evergreen is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Wafer Works and Evergreen Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evergreen Steel Corp and Wafer Works 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 Wafer Works are associated (or correlated) with Evergreen Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evergreen Steel Corp has no effect on the direction of Wafer Works i.e., Wafer Works and Evergreen Steel go up and down completely randomly.

Pair Corralation between Wafer Works and Evergreen Steel

Assuming the 90 days trading horizon Wafer Works is expected to generate 17.46 times less return on investment than Evergreen Steel. But when comparing it to its historical volatility, Wafer Works is 2.25 times less risky than Evergreen Steel. It trades about 0.02 of its potential returns per unit of risk. Evergreen Steel Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  10,500  in Evergreen Steel Corp on March 1, 2024 and sell it today you would earn a total of  3,150  from holding Evergreen Steel Corp or generate 30.0% return on investment over 90 days.

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

Wafer Works  vs.  Evergreen Steel Corp

Wafer Works

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wafer Works are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Wafer Works is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Evergreen Steel Corp

Risk-Adjusted Performance

12 of 100

OK

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

Pair Trading with Wafer Works and Evergreen Steel

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

The idea behind Wafer Works and Evergreen Steel Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.