Correlation Between Procyon and City View

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

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

Diversification Opportunities for Procyon and City View

-0.28

Correlation Coefficient

Procyon  City View

Very good diversification

The 3 months correlation between Procyon and City is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Procyon and City View Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City View Green and Procyon 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 Procyon are associated (or correlated) with City View. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City View Green has no effect on the direction of Procyon i.e., Procyon and City View go up and down completely randomly.

Pair Corralation between Procyon and City View

Given the investment horizon of 90 days Procyon is expected to generate 8.19 times less return on investment than City View. But when comparing it to its historical volatility, Procyon is 2.81 times less risky than City View. It trades about 0.02 of its potential returns per unit of risk. City View Green is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.40  in City View Green on October 7, 2024 and sell it today you would lose (0.07) from holding City View Green or give up 17.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Procyon  vs.  City View Green

Procyon

Risk-Adjusted Performance

0 of 100

Very Weak

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

City View Green

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City View Green are ranked lower than 3 (%) 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.

Pair Trading with Procyon and City View

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

The idea behind Procyon and City View Green 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.