Correlation Between Polygon and Aurora
Can any of the company-specific risk be diversified away by investing in both Polygon and Aurora 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 Polygon and Aurora into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Polygon and Aurora, you can compare the effects of market volatilities on Polygon and Aurora 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 Polygon with a short position of Aurora. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polygon and Aurora.
Diversification Opportunities for Polygon and Aurora
Very poor diversification
The 3 months correlation between Polygon and Aurora is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and Aurora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora and Polygon 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 Polygon are associated (or correlated) with Aurora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora has no effect on the direction of Polygon i.e., Polygon and Aurora go up and down completely randomly.
Pair Corralation between Polygon and Aurora
Assuming the 90 days trading horizon Polygon is expected to generate 1.18 times less return on investment than Aurora. But when comparing it to its historical volatility, Polygon is 2.4 times less risky than Aurora. It trades about 0.49 of its potential returns per unit of risk. Aurora is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 13.00 in Aurora on September 2, 2024 and sell it today you would earn a total of 11.00 from holding Aurora or generate 84.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Polygon vs. Aurora
Performance |
| Timeline |
| Polygon |
| Aurora |
Polygon and Aurora Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Polygon and Aurora
The main advantage of trading using opposite Polygon and Aurora positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon position performs unexpectedly, Aurora 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 Aurora will offset losses from the drop in Aurora's long position.The idea behind Polygon and Aurora 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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