Correlation Between City View and Stem Holdings

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

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

Diversification Opportunities for City View and Stem Holdings

0.04

Correlation Coefficient

City View  Stem Holdings

Significant diversification

The 3 months correlation between City and Stem is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding City View Green and Stem Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Holdings and City View 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 City View Green are associated (or correlated) with Stem Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Holdings has no effect on the direction of City View i.e., City View and Stem Holdings go up and down completely randomly.

Pair Corralation between City View and Stem Holdings

Assuming the 90 days horizon City View Green is expected to generate 1.27 times more return on investment than Stem Holdings. However, City View is 1.27 times more volatile than Stem Holdings. It trades about 0.07 of its potential returns per unit of risk. Stem Holdings is currently generating about -0.13 per unit of risk. If you would invest  0.52  in City View Green on December 19, 2024 and sell it today you would earn a total of  0.04  from holding City View Green or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

City View Green  vs.  Stem Holdings

City View Green

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in City View Green are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, City View reported solid returns over the last few months and may actually be approaching a breakup point.

Stem Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stem Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with City View and Stem Holdings

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

The idea behind City View Green and Stem Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.