Correlation Between Ontology and STRAX
Can any of the company-specific risk be diversified away by investing in both Ontology and STRAX 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 Ontology and STRAX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ontology and STRAX, you can compare the effects of market volatilities on Ontology and STRAX 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 Ontology with a short position of STRAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ontology and STRAX.
Diversification Opportunities for Ontology and STRAX
Almost no diversification
The 3 months correlation between Ontology and STRAX is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Ontology and STRAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STRAX and Ontology 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 Ontology are associated (or correlated) with STRAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STRAX has no effect on the direction of Ontology i.e., Ontology and STRAX go up and down completely randomly.
Pair Corralation between Ontology and STRAX
Assuming the 90 days trading horizon Ontology is expected to generate 1.06 times more return on investment than STRAX. However, Ontology is 1.06 times more volatile than STRAX. It trades about -0.01 of its potential returns per unit of risk. STRAX is currently generating about -0.02 per unit of risk. If you would invest 31.00 in Ontology on August 27, 2024 and sell it today you would lose (6.00) from holding Ontology or give up 19.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ontology vs. STRAX
Performance |
| Timeline |
| Ontology |
| STRAX |
Ontology and STRAX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ontology and STRAX
The main advantage of trading using opposite Ontology and STRAX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ontology position performs unexpectedly, STRAX 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 STRAX will offset losses from the drop in STRAX's long position.The idea behind Ontology and STRAX 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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