Correlation Between Edison International and Omega Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Edison International and Omega Therapeutics 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 Edison International and Omega Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edison International and Omega Therapeutics, you can compare the effects of market volatilities on Edison International and Omega Therapeutics 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 Edison International with a short position of Omega Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and Omega Therapeutics.

Diversification Opportunities for Edison International and Omega Therapeutics

0.31
  Correlation Coefficient

Weak diversification

The 3 months correlation between Edison and Omega is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Omega Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omega Therapeutics and Edison International 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 Edison International are associated (or correlated) with Omega Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omega Therapeutics has no effect on the direction of Edison International i.e., Edison International and Omega Therapeutics go up and down completely randomly.

Pair Corralation between Edison International and Omega Therapeutics

Considering the 90-day investment horizon Edison International is expected to generate 6.03 times less return on investment than Omega Therapeutics. But when comparing it to its historical volatility, Edison International is 2.75 times less risky than Omega Therapeutics. It trades about 0.16 of its potential returns per unit of risk. Omega Therapeutics is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  481.00  in Omega Therapeutics on August 31, 2022 and sell it today you would earn a total of  190.00  from holding Omega Therapeutics or generate 39.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Edison International  vs.  Omega Therapeutics

 Performance (%) 
       Timeline  
Edison International 
Edison Performance
0 of 100
Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Edison International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Edison Price Channel

Omega Therapeutics 
Omega Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Omega Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Omega Therapeutics sustained solid returns over the last few months and may actually be approaching a breakup point.

Omega Price Channel

Edison International and Omega Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Edison International and Omega Therapeutics

The main advantage of trading using opposite Edison International and Omega Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison International position performs unexpectedly, Omega Therapeutics 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 Omega Therapeutics will offset losses from the drop in Omega Therapeutics' long position.
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The idea behind Edison International and Omega Therapeutics 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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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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