Correlation Between EGain and Red Violet

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

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

Diversification Opportunities for EGain and Red Violet

0.14

Correlation Coefficient

EGain  Red Violet

Average diversification

The 3 months correlation between EGain and Red is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding eGain and Red Violet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Violet and EGain 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 eGain are associated (or correlated) with Red Violet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Violet has no effect on the direction of EGain i.e., EGain and Red Violet go up and down completely randomly.

Pair Corralation between EGain and Red Violet

Given the investment horizon of 90 days eGain is expected to generate 0.67 times more return on investment than Red Violet. However, eGain is 1.5 times less risky than Red Violet. It trades about -0.09 of its potential returns per unit of risk. Red Violet is currently generating about -0.29 per unit of risk. If you would invest  642.00  in eGain on February 2, 2024 and sell it today you would lose (18.00) from holding eGain or give up 2.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

eGain  vs.  Red Violet

eGain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eGain has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Red Violet

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EGain and Red Violet

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

The idea behind eGain and Red Violet 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.