Correlation Between Ensign and Vulcan Materials

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

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

Diversification Opportunities for Ensign and Vulcan Materials

0.63

Correlation Coefficient

Ensign  Vulcan Materials

Poor diversification

The 3 months correlation between Ensign and Vulcan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and Ensign 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 The Ensign Group are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Ensign i.e., Ensign and Vulcan Materials go up and down completely randomly.

Pair Corralation between Ensign and Vulcan Materials

Assuming the 90 days horizon The Ensign Group is expected to under-perform the Vulcan Materials. But the stock apears to be less risky and, when comparing its historical volatility, The Ensign Group is 1.11 times less risky than Vulcan Materials. The stock trades about -0.07 of its potential returns per unit of risk. The Vulcan Materials is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  24,800  in Vulcan Materials on February 7, 2024 and sell it today you would lose (400.00) from holding Vulcan Materials or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

The Ensign Group  vs.  Vulcan Materials

Ensign Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Ensign Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vulcan Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Ensign and Vulcan Materials

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

The idea behind The Ensign Group and Vulcan Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.