Correlation Between REDLANG and PAY

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

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

Diversification Opportunities for REDLANG and PAY

-0.12

Correlation Coefficient

REDLANG  PAY

Good diversification

The 3 months correlation between REDLANG and PAY is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding REDLANG and PAY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAY and REDLANG 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 REDLANG are associated (or correlated) with PAY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAY has no effect on the direction of REDLANG i.e., REDLANG and PAY go up and down completely randomly.

Pair Corralation between REDLANG and PAY

Assuming the 90 days trading horizon REDLANG is expected to generate 2.44 times more return on investment than PAY. However, REDLANG is 2.44 times more volatile than PAY. It trades about 0.01 of its potential returns per unit of risk. PAY is currently generating about -0.01 per unit of risk. If you would invest  0.11  in REDLANG on November 27, 2024 and sell it today you would lose (0.03) from holding REDLANG or give up 30.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

REDLANG  vs.  PAY

REDLANG

Risk-Adjusted Performance

Very Weak

Over the last 90 days REDLANG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady essential indicators, REDLANG may actually be approaching a critical reversion point that can send shares even higher in March 2025.

PAY

Risk-Adjusted Performance

Very Weak

Over the last 90 days PAY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PAY is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with REDLANG and PAY

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

The idea behind REDLANG and PAY 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.