Correlation Between Flare and Illuvium
Can any of the company-specific risk be diversified away by investing in both Flare and Illuvium 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 Flare and Illuvium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Flare and Illuvium, you can compare the effects of market volatilities on Flare and Illuvium 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 Flare with a short position of Illuvium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flare and Illuvium.
Diversification Opportunities for Flare and Illuvium
Almost no diversification
The 3 months correlation between Flare and Illuvium is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Flare and Illuvium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illuvium and Flare 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 Flare are associated (or correlated) with Illuvium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illuvium has no effect on the direction of Flare i.e., Flare and Illuvium go up and down completely randomly.
Pair Corralation between Flare and Illuvium
Assuming the 90 days trading horizon Flare is expected to generate 1.8 times more return on investment than Illuvium. However, Flare is 1.8 times more volatile than Illuvium. It trades about 0.53 of its potential returns per unit of risk. Illuvium is currently generating about 0.57 per unit of risk. If you would invest 1.24 in Flare on September 4, 2024 and sell it today you would earn a total of 2.26 from holding Flare or generate 182.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Flare vs. Illuvium
Performance |
| Timeline |
| Flare |
| Illuvium |
Flare and Illuvium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Flare and Illuvium
The main advantage of trading using opposite Flare and Illuvium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flare position performs unexpectedly, Illuvium 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 Illuvium will offset losses from the drop in Illuvium's long position.The idea behind Flare and Illuvium 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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