Correlation Between Ensign and Koninklijke Philips

Can any of the company-specific risk be diversified away by investing in both Ensign and Koninklijke Philips 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 Koninklijke Philips 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 Koninklijke Philips NV, you can compare the effects of market volatilities on Ensign and Koninklijke Philips 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 Koninklijke Philips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ensign and Koninklijke Philips.

Diversification Opportunities for Ensign and Koninklijke Philips

-0.44

Correlation Coefficient

Ensign  Koninklijke Philips

Very good diversification

The 3 months correlation between Ensign and Koninklijke is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips 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 Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Ensign i.e., Ensign and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Ensign and Koninklijke Philips

Given the investment horizon of 90 days The Ensign Group is expected to generate 0.57 times more return on investment than Koninklijke Philips. However, The Ensign Group is 1.74 times less risky than Koninklijke Philips. It trades about 0.07 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about 0.03 per unit of risk. If you would invest  7,598  in The Ensign Group on January 31, 2024 and sell it today you would earn a total of  4,271  from holding The Ensign Group or generate 56.21% return on investment over 90 days.

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

The Ensign Group  vs.  Koninklijke Philips NV

Ensign Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Koninklijke Philips

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke Philips NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Koninklijke Philips reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ensign and Koninklijke Philips

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

The idea behind The Ensign Group and Koninklijke Philips NV 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.