Correlation Between Purple Innovation and Energy Focu

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

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

Diversification Opportunities for Purple Innovation and Energy Focu

-0.48

Correlation Coefficient

Purple Innovation  Energy Focu

Very good diversification

The 3 months correlation between Purple and Energy is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and Energy Focu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Focu and Purple Innovation 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 Purple Innovation are associated (or correlated) with Energy Focu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Focu has no effect on the direction of Purple Innovation i.e., Purple Innovation and Energy Focu go up and down completely randomly.

Pair Corralation between Purple Innovation and Energy Focu

Given the investment horizon of 90 days Purple Innovation is expected to generate 55.41 times less return on investment than Energy Focu. But when comparing it to its historical volatility, Purple Innovation is 2.32 times less risky than Energy Focu. It trades about 0.0 of its potential returns per unit of risk. Energy Focu is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  121.00  in Energy Focu on December 28, 2024 and sell it today you would earn a total of  64.00  from holding Energy Focu or generate 52.89% return on investment over 90 days.

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

Purple Innovation  vs.  Energy Focu

Purple Innovation

Risk-Adjusted Performance

Weak

Over the last 90 days Purple Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Purple Innovation is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Energy Focu

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Focu are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Energy Focu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Purple Innovation and Energy Focu

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

The idea behind Purple Innovation and Energy Focu 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..