Correlation Between POCC and KEY
Can any of the company-specific risk be diversified away by investing in both POCC and KEY 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 POCC and KEY into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between POCC and KEY, you can compare the effects of market volatilities on POCC and KEY 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 POCC with a short position of KEY. Check out your portfolio center. Please also check ongoing floating volatility patterns of POCC and KEY.
Diversification Opportunities for POCC and KEY
Very good diversification
The 3 months correlation between POCC and KEY is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding POCC and KEY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEY and POCC 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 POCC are associated (or correlated) with KEY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEY has no effect on the direction of POCC i.e., POCC and KEY go up and down completely randomly.
Pair Corralation between POCC and KEY
Assuming the 90 days trading horizon POCC is expected to generate 9.17 times more return on investment than KEY. However, POCC is 9.17 times more volatile than KEY. It trades about 0.09 of its potential returns per unit of risk. KEY is currently generating about 0.04 per unit of risk. If you would invest 0.04 in POCC on August 25, 2024 and sell it today you would lose (0.03) from holding POCC or give up 61.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
POCC vs. KEY
Performance |
| Timeline |
| POCC |
| KEY |
POCC and KEY Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with POCC and KEY
The main advantage of trading using opposite POCC and KEY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POCC position performs unexpectedly, KEY 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 KEY will offset losses from the drop in KEY's long position.The idea behind POCC and KEY 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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