Correlation Between City View and Benchmark Botanics
Can any of the company-specific risk be diversified away by investing in both City View and Benchmark Botanics 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 City View and Benchmark Botanics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between City View Green and Benchmark Botanics, you can compare the effects of market volatilities on City View and Benchmark Botanics 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 City View with a short position of Benchmark Botanics. Check out your portfolio center. Please also check ongoing floating volatility patterns of City View and Benchmark Botanics.
Diversification Opportunities for City View and Benchmark Botanics
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between City and Benchmark is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding City View Green and Benchmark Botanics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Botanics and City View 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 City View Green are associated (or correlated) with Benchmark Botanics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Botanics has no effect on the direction of City View i.e., City View and Benchmark Botanics go up and down completely randomly.
Pair Corralation between City View and Benchmark Botanics
Assuming the 90 days horizon City View is expected to generate 1.18 times less return on investment than Benchmark Botanics. But when comparing it to its historical volatility, City View Green is 2.05 times less risky than Benchmark Botanics. It trades about 0.08 of its potential returns per unit of risk. Benchmark Botanics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1.00 in Benchmark Botanics on August 28, 2024 and sell it today you would lose (0.66) from holding Benchmark Botanics or give up 66.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
City View Green vs. Benchmark Botanics
Performance |
| Timeline |
| City View Green |
| Benchmark Botanics |
City View and Benchmark Botanics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with City View and Benchmark Botanics
The main advantage of trading using opposite City View and Benchmark Botanics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City View position performs unexpectedly, Benchmark Botanics 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 Benchmark Botanics will offset losses from the drop in Benchmark Botanics' long position.The idea behind City View Green and Benchmark Botanics 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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