Correlation Between Red Cat and WEG SA
Can any of the company-specific risk be diversified away by investing in both Red Cat and WEG SA 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 Red Cat and WEG SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Red Cat Holdings and WEG SA ADR, you can compare the effects of market volatilities on Red Cat and WEG SA 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 Red Cat with a short position of WEG SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Cat and WEG SA.
Diversification Opportunities for Red Cat and WEG SA
Very good diversification
The 3 months correlation between Red and WEG is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Red Cat Holdings and WEG SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA ADR and Red Cat 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 Red Cat Holdings are associated (or correlated) with WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA ADR has no effect on the direction of Red Cat i.e., Red Cat and WEG SA go up and down completely randomly.
Pair Corralation between Red Cat and WEG SA
Given the investment horizon of 90 days Red Cat Holdings is expected to generate 5.46 times more return on investment than WEG SA. However, Red Cat is 5.46 times more volatile than WEG SA ADR. It trades about 0.59 of its potential returns per unit of risk. WEG SA ADR is currently generating about -0.14 per unit of risk. If you would invest 306.00 in Red Cat Holdings on August 27, 2024 and sell it today you would earn a total of 591.00 from holding Red Cat Holdings or generate 193.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Red Cat Holdings vs. WEG SA ADR
Performance |
| Timeline |
| Red Cat Holdings |
| WEG SA ADR |
Red Cat and WEG SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Red Cat and WEG SA
The main advantage of trading using opposite Red Cat and WEG SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red Cat position performs unexpectedly, WEG SA 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 WEG SA will offset losses from the drop in WEG SA's long position.The idea behind Red Cat Holdings and WEG SA ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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