Correlation Between VINCI and SWRV
Can any of the company-specific risk be diversified away by investing in both VINCI and SWRV 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 VINCI and SWRV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VINCI and SWRV, you can compare the effects of market volatilities on VINCI and SWRV 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 VINCI with a short position of SWRV. Check out your portfolio center. Please also check ongoing floating volatility patterns of VINCI and SWRV.
Diversification Opportunities for VINCI and SWRV
Poor diversification
The 3 months correlation between VINCI and SWRV is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding VINCI and SWRV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWRV and VINCI 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 VINCI are associated (or correlated) with SWRV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWRV has no effect on the direction of VINCI i.e., VINCI and SWRV go up and down completely randomly.
Pair Corralation between VINCI and SWRV
Assuming the 90 days trading horizon VINCI is expected to generate 2.11 times less return on investment than SWRV. But when comparing it to its historical volatility, VINCI is 4.45 times less risky than SWRV. It trades about 0.26 of its potential returns per unit of risk. SWRV is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 0.55 in SWRV on August 31, 2024 and sell it today you would earn a total of 0.40 from holding SWRV or generate 72.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
VINCI vs. SWRV
Performance |
| Timeline |
| VINCI |
| SWRV |
VINCI and SWRV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VINCI and SWRV
The main advantage of trading using opposite VINCI and SWRV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VINCI position performs unexpectedly, SWRV 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 SWRV will offset losses from the drop in SWRV's long position.The idea behind VINCI and SWRV 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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