Correlation Between Stacks and Fwog

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

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

Diversification Opportunities for Stacks and Fwog

0.22

Correlation Coefficient

Stacks  Fwog

Modest diversification

The 3 months correlation between Stacks and Fwog is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Stacks and Fwog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fwog and Stacks 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 Stacks are associated (or correlated) with Fwog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fwog has no effect on the direction of Stacks i.e., Stacks and Fwog go up and down completely randomly.

Pair Corralation between Stacks and Fwog

Assuming the 90 days trading horizon Stacks is expected to generate 267.92 times less return on investment than Fwog. But when comparing it to its historical volatility, Stacks is 20.41 times less risky than Fwog. It trades about 0.01 of its potential returns per unit of risk. Fwog is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Fwog on October 10, 2024 and sell it today you would earn a total of  2.00  from holding Fwog or generate 10.53% return on investment over 90 days.

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

Stacks  vs.  Fwog

Stacks

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fwog

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fwog are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Fwog exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stacks and Fwog

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

The idea behind Stacks and Fwog 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.