Correlation Between Quant and Sandbox

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

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

Diversification Opportunities for Quant and Sandbox

0.91

Correlation Coefficient

Quant  Sandbox

Almost no diversification

The 3 months correlation between Quant and Sandbox is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Quant and The Sandbox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandbox and Quant 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 Quant are associated (or correlated) with Sandbox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandbox has no effect on the direction of Quant i.e., Quant and Sandbox go up and down completely randomly.

Pair Corralation between Quant and Sandbox

Assuming the 90 days trading horizon Quant is expected to generate 1.74 times less return on investment than Sandbox. But when comparing it to its historical volatility, Quant is 1.14 times less risky than Sandbox. It trades about 0.05 of its potential returns per unit of risk. The Sandbox is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  33.00  in The Sandbox on November 19, 2024 and sell it today you would earn a total of  7.00  from holding The Sandbox or generate 21.21% return on investment over 90 days.

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

Quant  vs.  The Sandbox

Quant

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quant are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Quant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sandbox

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Sandbox are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Sandbox exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Quant and Sandbox

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

The idea behind Quant and The Sandbox 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.