Correlation Between Stellar and Sustainable Equity

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

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

Diversification Opportunities for Stellar and Sustainable Equity

0.53

Correlation Coefficient

Stellar  Sustainable Equity

Very weak diversification

The 3 months correlation between Stellar and Sustainable is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Sustainable Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sustainable Equity and Stellar 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 Stellar are associated (or correlated) with Sustainable Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sustainable Equity has no effect on the direction of Stellar i.e., Stellar and Sustainable Equity go up and down completely randomly.

Pair Corralation between Stellar and Sustainable Equity

Assuming the 90 days trading horizon Stellar is expected to under-perform the Sustainable Equity. In addition to that, Stellar is 6.09 times more volatile than Sustainable Equity Fund. It trades about -0.07 of its total potential returns per unit of risk. Sustainable Equity Fund is currently generating about -0.12 per unit of volatility. If you would invest  5,378  in Sustainable Equity Fund on December 23, 2024 and sell it today you would lose (403.00) from holding Sustainable Equity Fund or give up 7.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.85%
Values	Daily Returns

Stellar  vs.  Sustainable Equity Fund

Stellar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stellar 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 primary 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 Stellar shareholders.

Sustainable Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sustainable Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Stellar and Sustainable Equity

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

The idea behind Stellar and Sustainable Equity Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.