Correlation Between WTC and CLO
Can any of the company-specific risk be diversified away by investing in both WTC and CLO 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 WTC and CLO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WTC and CLO, you can compare the effects of market volatilities on WTC and CLO 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 WTC with a short position of CLO. Check out your portfolio center. Please also check ongoing floating volatility patterns of WTC and CLO.
Diversification Opportunities for WTC and CLO
Pay attention - limited upside
The 3 months correlation between WTC and CLO is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding WTC and CLO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLO and WTC 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 WTC are associated (or correlated) with CLO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLO has no effect on the direction of WTC i.e., WTC and CLO go up and down completely randomly.
Pair Corralation between WTC and CLO
Assuming the 90 days trading horizon WTC is expected to under-perform the CLO. But the crypto coin apears to be less risky and, when comparing its historical volatility, WTC is 10.94 times less risky than CLO. The crypto coin trades about -0.22 of its potential returns per unit of risk. The CLO is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 0.07 in CLO on August 27, 2024 and sell it today you would lose (0.05) from holding CLO or give up 74.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
WTC vs. CLO
Performance |
| Timeline |
| WTC |
| CLO |
WTC and CLO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WTC and CLO
The main advantage of trading using opposite WTC and CLO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WTC position performs unexpectedly, CLO 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 CLO will offset losses from the drop in CLO's long position.The idea behind WTC and CLO 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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