Correlation Between Stacks and SC

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

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

Diversification Opportunities for Stacks and SC

0.98

Correlation Coefficient

Stacks  SC

Almost no diversification

The 3 months correlation between Stacks and SC is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Stacks and SC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC 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 SC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC has no effect on the direction of Stacks i.e., Stacks and SC go up and down completely randomly.

Pair Corralation between Stacks and SC

Assuming the 90 days trading horizon Stacks is expected to under-perform the SC. In addition to that, Stacks is 1.54 times more volatile than SC. It trades about -0.17 of its total potential returns per unit of risk. SC is currently generating about -0.15 per unit of volatility. If you would invest  0.53  in SC on December 28, 2024 and sell it today you would lose (0.18) from holding SC or give up 34.18% of portfolio value over 90 days.

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

Stacks  vs.  SC

Stacks

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Stacks shareholders.

SC

Risk-Adjusted Performance

Very Weak

Over the last 90 days SC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for SC shareholders.

Pair Trading with Stacks and SC

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

The idea behind Stacks and SC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.