Correlation Between Vela Small and Vela Income
Can any of the company-specific risk be diversified away by investing in both Vela Small and Vela Income 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 Vela Small and Vela Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vela Small Cap and Vela Income Opportunities, you can compare the effects of market volatilities on Vela Small and Vela Income 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 Vela Small with a short position of Vela Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vela Small and Vela Income.
Diversification Opportunities for Vela Small and Vela Income
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vela and Vela is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vela Small Cap and Vela Income Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela Income Opportunities and Vela Small 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 Vela Small Cap are associated (or correlated) with Vela Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela Income Opportunities has no effect on the direction of Vela Small i.e., Vela Small and Vela Income go up and down completely randomly.
Pair Corralation between Vela Small and Vela Income
Assuming the 90 days horizon Vela Small Cap is expected to generate 2.65 times more return on investment than Vela Income. However, Vela Small is 2.65 times more volatile than Vela Income Opportunities. It trades about 0.17 of its potential returns per unit of risk. Vela Income Opportunities is currently generating about 0.11 per unit of risk. If you would invest 1,933 in Vela Small Cap on August 28, 2024 and sell it today you would earn a total of 83.00 from holding Vela Small Cap or generate 4.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vela Small Cap vs. Vela Income Opportunities
Performance |
| Timeline |
| Vela Small Cap |
| Vela Income Opportunities |
Vela Small and Vela Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vela Small and Vela Income
The main advantage of trading using opposite Vela Small and Vela Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vela Small position performs unexpectedly, Vela Income 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 Vela Income will offset losses from the drop in Vela Income's long position.| Vela Small vs. Vela International | Vela Small vs. Vela International | Vela Small vs. Vela Large Cap | Vela Small vs. Vela Large Cap |
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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