Correlation Between CLO and REDLANG

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

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

Diversification Opportunities for CLO and REDLANG

0.16

Correlation Coefficient

CLO  REDLANG

Average diversification

The 3 months correlation between CLO and REDLANG is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding CLO and REDLANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REDLANG and CLO 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 CLO are associated (or correlated) with REDLANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REDLANG has no effect on the direction of CLO i.e., CLO and REDLANG go up and down completely randomly.

Pair Corralation between CLO and REDLANG

Assuming the 90 days trading horizon CLO is expected to generate 8.97 times more return on investment than REDLANG. However, CLO is 8.97 times more volatile than REDLANG. It trades about 0.23 of its potential returns per unit of risk. REDLANG is currently generating about 0.01 per unit of risk. If you would invest  0.07  in CLO on November 27, 2024 and sell it today you would lose (0.06) from holding CLO or give up 86.76% of portfolio value over 90 days.

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

CLO  vs.  REDLANG

CLO

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CLO exhibited solid returns over the last few months and may actually be approaching a breakup point.

REDLANG

Risk-Adjusted Performance

Very Weak

Over the last 90 days REDLANG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady essential indicators, REDLANG may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with CLO and REDLANG

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

The idea behind CLO and REDLANG 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.