Correlation Between Investor and Starfleet Innotech

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

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

Diversification Opportunities for Investor and Starfleet Innotech

-0.38

Correlation Coefficient

Investor  Starfleet Innotech

Very good diversification

The 3 months correlation between Investor and Starfleet is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB ser and Starfleet Innotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starfleet Innotech and Investor 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 Investor AB ser are associated (or correlated) with Starfleet Innotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starfleet Innotech has no effect on the direction of Investor i.e., Investor and Starfleet Innotech go up and down completely randomly.

Pair Corralation between Investor and Starfleet Innotech

Assuming the 90 days horizon Investor is expected to generate 10.47 times less return on investment than Starfleet Innotech. But when comparing it to its historical volatility, Investor AB ser is 12.01 times less risky than Starfleet Innotech. It trades about 0.08 of its potential returns per unit of risk. Starfleet Innotech is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.49  in Starfleet Innotech on September 16, 2024 and sell it today you would lose (0.04) from holding Starfleet Innotech or give up 8.16% of portfolio value over 90 days.

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

Investor AB ser  vs.  Starfleet Innotech

Investor AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investor AB ser has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Starfleet Innotech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Starfleet Innotech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Starfleet Innotech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investor and Starfleet Innotech

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

The idea behind Investor AB ser and Starfleet Innotech 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.