Correlation Between Stone Ridge and Six Circles

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

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

Diversification Opportunities for Stone Ridge and Six Circles

-0.26

Correlation Coefficient

Stone Ridge  Six Circles

Very good diversification

The 3 months correlation between Stone and Six is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Stone Ridge Diversified and Six Circles International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Six Circles International and Stone Ridge 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 Stone Ridge Diversified are associated (or correlated) with Six Circles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Six Circles International has no effect on the direction of Stone Ridge i.e., Stone Ridge and Six Circles go up and down completely randomly.

Pair Corralation between Stone Ridge and Six Circles

Assuming the 90 days horizon Stone Ridge is expected to generate 21.8 times less return on investment than Six Circles. But when comparing it to its historical volatility, Stone Ridge Diversified is 4.79 times less risky than Six Circles. It trades about 0.04 of its potential returns per unit of risk. Six Circles International is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,073  in Six Circles International on December 27, 2024 and sell it today you would earn a total of  115.00  from holding Six Circles International or generate 10.72% return on investment over 90 days.

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

Stone Ridge Diversified  vs.  Six Circles International

Stone Ridge Diversified

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge Diversified are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Stone Ridge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Six Circles International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Six Circles International are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Six Circles may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Stone Ridge and Six Circles

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

The idea behind Stone Ridge Diversified and Six Circles International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.