Correlation Between Red Light and City View

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

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

Diversification Opportunities for Red Light and City View

0.26

Correlation Coefficient

Red Light  City View

Modest diversification

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

Pair Corralation between Red Light and City View

Assuming the 90 days horizon Red Light Holland is expected to under-perform the City View. But the otc stock apears to be less risky and, when comparing its historical volatility, Red Light Holland is 2.37 times less risky than City View. The otc stock trades about -0.03 of its potential returns per unit of risk. The City View Green is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.26  in City View Green on December 27, 2024 and sell it today you would earn a total of  0.12  from holding City View Green or generate 46.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Red Light Holland  vs.  City View Green

Red Light Holland

Risk-Adjusted Performance

Very Weak

Over the last 90 days Red Light Holland has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

City View Green

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City View Green are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, City View reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Light and City View

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

The idea behind Red Light Holland and City View Green 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.