Correlation Between FACT II and Inception Growth

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

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

Diversification Opportunities for FACT II and Inception Growth

-0.12

Correlation Coefficient

FACT II  Inception Growth

Good diversification

The 3 months correlation between FACT and Inception is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding FACT II Acquisition and Inception Growth Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inception Growth Acq and FACT II 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 FACT II Acquisition are associated (or correlated) with Inception Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inception Growth Acq has no effect on the direction of FACT II i.e., FACT II and Inception Growth go up and down completely randomly.

Pair Corralation between FACT II and Inception Growth

Given the investment horizon of 90 days FACT II is expected to generate 8.68 times less return on investment than Inception Growth. But when comparing it to its historical volatility, FACT II Acquisition is 11.7 times less risky than Inception Growth. It trades about 0.22 of its potential returns per unit of risk. Inception Growth Acquisition is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Inception Growth Acquisition on October 9, 2024 and sell it today you would lose (14.00) from holding Inception Growth Acquisition or give up 73.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	8.33%
Values	Daily Returns

FACT II Acquisition  vs.  Inception Growth Acquisition

FACT II Acquisition

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FACT II Acquisition are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, FACT II may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Inception Growth Acq

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Inception Growth Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, Inception Growth reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FACT II and Inception Growth

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

The idea behind FACT II Acquisition and Inception Growth Acquisition 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.