Correlation Between V and Fact
Can any of the company-specific risk be diversified away by investing in both V and Fact 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 V and Fact into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between V Group and Fact Inc, you can compare the effects of market volatilities on V and Fact 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 V with a short position of Fact. Check out your portfolio center. Please also check ongoing floating volatility patterns of V and Fact.
Diversification Opportunities for V and Fact
No risk reduction
The 3 months correlation between V and Fact is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding V Group and Fact Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fact Inc and V 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 V Group are associated (or correlated) with Fact. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fact Inc has no effect on the direction of V i.e., V and Fact go up and down completely randomly.
Pair Corralation between V and Fact
Given the investment horizon of 90 days V Group is expected to generate 1.85 times more return on investment than Fact. However, V is 1.85 times more volatile than Fact Inc. It trades about 0.08 of its potential returns per unit of risk. Fact Inc is currently generating about 0.02 per unit of risk. If you would invest 0.03 in V Group on August 31, 2024 and sell it today you would lose (0.03) from holding V Group or give up 100.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
V Group vs. Fact Inc
Performance |
| Timeline |
| V Group |
| Fact Inc |
V and Fact Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with V and Fact
The main advantage of trading using opposite V and Fact positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if V position performs unexpectedly, Fact 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 Fact will offset losses from the drop in Fact's long position.The idea behind V Group and Fact Inc 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.
Other Complementary Tools
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |