Correlation Between Audius and Ribbon Finance

Can any of the company-specific risk be diversified away by investing in both Audius and Ribbon Finance 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 Audius and Ribbon Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Audius and Ribbon Finance, you can compare the effects of market volatilities on Audius and Ribbon Finance 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 Audius with a short position of Ribbon Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Audius and Ribbon Finance.

Diversification Opportunities for Audius and Ribbon Finance

0.88

Correlation Coefficient

Audius  Ribbon Finance

Very poor diversification

The 3 months correlation between Audius and Ribbon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Audius and Ribbon Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Finance and Audius 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 Audius are associated (or correlated) with Ribbon Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Finance has no effect on the direction of Audius i.e., Audius and Ribbon Finance go up and down completely randomly.

Pair Corralation between Audius and Ribbon Finance

Assuming the 90 days trading horizon Audius is expected to generate 1.23 times less return on investment than Ribbon Finance. But when comparing it to its historical volatility, Audius is 1.11 times less risky than Ribbon Finance. It trades about 0.14 of its potential returns per unit of risk. Ribbon Finance is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Ribbon Finance on September 3, 2024 and sell it today you would earn a total of  19.00  from holding Ribbon Finance or generate 59.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Audius  vs.  Ribbon Finance

Audius

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Audius are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Audius exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ribbon Finance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Finance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ribbon Finance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Audius and Ribbon Finance

The main advantage of trading using opposite Audius and Ribbon Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Audius position performs unexpectedly, Ribbon Finance 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 Ribbon Finance will offset losses from the drop in Ribbon Finance's long position.

The idea behind Audius and Ribbon Finance 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.