Correlation Between Fresh Grapes and Encore Wire

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

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

Diversification Opportunities for Fresh Grapes and Encore Wire

-0.69

Correlation Coefficient

Fresh Grapes  Encore Wire

Excellent diversification

The 3 months correlation between Fresh and Encore is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fresh Grapes LLC and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Fresh Grapes 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 Fresh Grapes LLC 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 Fresh Grapes i.e., Fresh Grapes and Encore Wire go up and down completely randomly.

Pair Corralation between Fresh Grapes and Encore Wire

Given the investment horizon of 90 days Fresh Grapes LLC is expected to under-perform the Encore Wire. In addition to that, Fresh Grapes is 2.16 times more volatile than Encore Wire. It trades about -0.09 of its total potential returns per unit of risk. Encore Wire is currently generating about 0.12 per unit of volatility. If you would invest  26,738  in Encore Wire on January 30, 2024 and sell it today you would earn a total of  1,751  from holding Encore Wire or generate 6.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Fresh Grapes LLC  vs.  Encore Wire

Fresh Grapes LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fresh Grapes LLC 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 rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Encore Wire

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fresh Grapes and Encore Wire

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

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.