Correlation Between Exponent and Red Violet

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

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

Diversification Opportunities for Exponent and Red Violet

-0.08

Correlation Coefficient

Exponent  Red Violet

Good diversification

The 3 months correlation between Exponent and Red is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Exponent and Red Violet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Violet and Exponent 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 Exponent are associated (or correlated) with Red Violet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Violet has no effect on the direction of Exponent i.e., Exponent and Red Violet go up and down completely randomly.

Pair Corralation between Exponent and Red Violet

Given the investment horizon of 90 days Exponent is expected to under-perform the Red Violet. But the stock apears to be less risky and, when comparing its historical volatility, Exponent is 2.14 times less risky than Red Violet. The stock trades about -0.19 of its potential returns per unit of risk. The Red Violet is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,650  in Red Violet on November 29, 2024 and sell it today you would earn a total of  285.00  from holding Red Violet or generate 7.81% return on investment over 90 days.

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

Exponent  vs.  Red Violet

Exponent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exponent has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Red Violet

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Red Violet are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Red Violet may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Exponent and Red Violet

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

The idea behind Exponent and Red Violet 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.