Correlation Between PAY and Xai
Can any of the company-specific risk be diversified away by investing in both PAY and Xai 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 PAY and Xai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PAY and Xai, you can compare the effects of market volatilities on PAY and Xai 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 PAY with a short position of Xai. Check out your portfolio center. Please also check ongoing floating volatility patterns of PAY and Xai.
Diversification Opportunities for PAY and Xai
Good diversification
The 3 months correlation between PAY and Xai is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding PAY and Xai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xai and PAY 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 PAY are associated (or correlated) with Xai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xai has no effect on the direction of PAY i.e., PAY and Xai go up and down completely randomly.
Pair Corralation between PAY and Xai
Assuming the 90 days trading horizon PAY is expected to generate 0.72 times more return on investment than Xai. However, PAY is 1.39 times less risky than Xai. It trades about 0.01 of its potential returns per unit of risk. Xai is currently generating about -0.31 per unit of risk. If you would invest 0.66 in PAY on November 10, 2024 and sell it today you would lose (0.02) from holding PAY or give up 3.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PAY vs. Xai
Performance |
| Timeline |
| PAY |
| Xai |
PAY and Xai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PAY and Xai
The main advantage of trading using opposite PAY and Xai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PAY position performs unexpectedly, Xai 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 Xai will offset losses from the drop in Xai's long position.The idea behind PAY and Xai 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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