Correlation Between EXP and ETP
Can any of the company-specific risk be diversified away by investing in both EXP and ETP 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 EXP and ETP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EXP and ETP, you can compare the effects of market volatilities on EXP and ETP 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 EXP with a short position of ETP. Check out your portfolio center. Please also check ongoing floating volatility patterns of EXP and ETP.
Diversification Opportunities for EXP and ETP
Significant diversification
The 3 months correlation between EXP and ETP is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding EXP and ETP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETP and EXP 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 EXP are associated (or correlated) with ETP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETP has no effect on the direction of EXP i.e., EXP and ETP go up and down completely randomly.
Pair Corralation between EXP and ETP
Assuming the 90 days trading horizon EXP is expected to generate 22.62 times less return on investment than ETP. But when comparing it to its historical volatility, EXP is 30.56 times less risky than ETP. It trades about 0.32 of its potential returns per unit of risk. ETP is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 0.35 in ETP on August 27, 2024 and sell it today you would earn a total of 2.95 from holding ETP or generate 853.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EXP vs. ETP
Performance |
| Timeline |
| EXP |
| ETP |
EXP and ETP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EXP and ETP
The main advantage of trading using opposite EXP and ETP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EXP position performs unexpectedly, ETP 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 ETP will offset losses from the drop in ETP's long position.The idea behind EXP and ETP 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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