Correlation Between Velo and Ribbon Finance

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

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

Diversification Opportunities for Velo and Ribbon Finance

0.68

Correlation Coefficient

Velo  Ribbon Finance

Poor diversification

The 3 months correlation between Velo and Ribbon is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Velo and Ribbon Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Finance and Velo 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 Velo are associated (or correlated) with Ribbon Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Finance has no effect on the direction of Velo i.e., Velo and Ribbon Finance go up and down completely randomly.

Pair Corralation between Velo and Ribbon Finance

Assuming the 90 days trading horizon Velo is expected to generate 1.58 times less return on investment than Ribbon Finance. In addition to that, Velo is 1.19 times more volatile than Ribbon Finance. It trades about 0.09 of its total potential returns per unit of risk. Ribbon Finance is currently generating about 0.16 per unit of volatility. If you would invest  31.00  in Ribbon Finance on September 1, 2024 and sell it today you would earn a total of  20.00  from holding Ribbon Finance or generate 64.52% return on investment over 90 days.

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

Velo  vs.  Ribbon Finance

Velo

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Velo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Velo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ribbon Finance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Finance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ribbon Finance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Velo and Ribbon Finance

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

The idea behind Velo and Ribbon Finance 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.