Correlation Between Overlay Shares and OVS SpA

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

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

Diversification Opportunities for Overlay Shares and OVS SpA

0.33

Correlation Coefficient

Overlay Shares  OVS SpA

Weak diversification

The 3 months correlation between Overlay and OVS is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Core and OVS SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OVS SpA and Overlay Shares 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 Overlay Shares Core are associated (or correlated) with OVS SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OVS SpA has no effect on the direction of Overlay Shares i.e., Overlay Shares and OVS SpA go up and down completely randomly.

Pair Corralation between Overlay Shares and OVS SpA

Considering the 90-day investment horizon Overlay Shares Core is expected to under-perform the OVS SpA. But the etf apears to be less risky and, when comparing its historical volatility, Overlay Shares Core is 3.72 times less risky than OVS SpA. The etf trades about -0.15 of its potential returns per unit of risk. The OVS SpA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,576  in OVS SpA on October 6, 2024 and sell it today you would lose (48.00) from holding OVS SpA or give up 1.34% of portfolio value over 90 days.

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

Overlay Shares Core  vs.  OVS SpA

Overlay Shares Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Overlay Shares is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

OVS SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OVS SpA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, OVS SpA is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Overlay Shares and OVS SpA

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

The idea behind Overlay Shares Core and OVS SpA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.