Correlation Between D Wave and Red Cat
Can any of the company-specific risk be diversified away by investing in both D Wave and Red Cat 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 D Wave and Red Cat into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between D Wave Quantum and Red Cat Holdings, you can compare the effects of market volatilities on D Wave and Red Cat 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 D Wave with a short position of Red Cat. Check out your portfolio center. Please also check ongoing floating volatility patterns of D Wave and Red Cat.
Diversification Opportunities for D Wave and Red Cat
Very poor diversification
The 3 months correlation between QBTS and Red is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding D Wave Quantum and Red Cat Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Cat Holdings and D Wave 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 D Wave Quantum are associated (or correlated) with Red Cat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Cat Holdings has no effect on the direction of D Wave i.e., D Wave and Red Cat go up and down completely randomly.
Pair Corralation between D Wave and Red Cat
Given the investment horizon of 90 days D Wave is expected to generate 1.1 times less return on investment than Red Cat. In addition to that, D Wave is 1.27 times more volatile than Red Cat Holdings. It trades about 0.28 of its total potential returns per unit of risk. Red Cat Holdings is currently generating about 0.39 per unit of volatility. If you would invest 245.00 in Red Cat Holdings on August 27, 2024 and sell it today you would earn a total of 652.00 from holding Red Cat Holdings or generate 266.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
D Wave Quantum vs. Red Cat Holdings
Performance |
| Timeline |
| D Wave Quantum |
| Red Cat Holdings |
D Wave and Red Cat Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with D Wave and Red Cat
The main advantage of trading using opposite D Wave and Red Cat positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if D Wave position performs unexpectedly, Red Cat 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 Red Cat will offset losses from the drop in Red Cat's long position.The idea behind D Wave Quantum and Red Cat Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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