Correlation Between Wendel and Roctool
Can any of the company-specific risk be diversified away by investing in both Wendel and Roctool 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 Wendel and Roctool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wendel and Roctool, you can compare the effects of market volatilities on Wendel and Roctool 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 Wendel with a short position of Roctool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendel and Roctool.
Diversification Opportunities for Wendel and Roctool
Very good diversification
The 3 months correlation between Wendel and Roctool is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Wendel and Roctool in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roctool and Wendel 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 Wendel are associated (or correlated) with Roctool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roctool has no effect on the direction of Wendel i.e., Wendel and Roctool go up and down completely randomly.
Pair Corralation between Wendel and Roctool
Assuming the 90 days horizon Wendel is expected to generate 0.27 times more return on investment than Roctool. However, Wendel is 3.77 times less risky than Roctool. It trades about 0.03 of its potential returns per unit of risk. Roctool is currently generating about -0.07 per unit of risk. If you would invest 8,202 in Wendel on September 2, 2024 and sell it today you would earn a total of 1,193 from holding Wendel or generate 14.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wendel vs. Roctool
Performance |
| Timeline |
| Wendel |
| Roctool |
Wendel and Roctool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendel and Roctool
The main advantage of trading using opposite Wendel and Roctool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendel position performs unexpectedly, Roctool 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 Roctool will offset losses from the drop in Roctool's long position.The idea behind Wendel and Roctool 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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