Correlation Between Stellar and New Tech

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

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

Diversification Opportunities for Stellar and New Tech

-0.88

Correlation Coefficient

Stellar  New Tech

Pay attention - limited upside

The 3 months correlation between Stellar and New is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and New Tech Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Tech Capital 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 New Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Tech Capital has no effect on the direction of Stellar i.e., Stellar and New Tech go up and down completely randomly.

Pair Corralation between Stellar and New Tech

Assuming the 90 days trading horizon Stellar is expected to generate 1.55 times less return on investment than New Tech. In addition to that, Stellar is 2.41 times more volatile than New Tech Capital. It trades about 0.04 of its total potential returns per unit of risk. New Tech Capital is currently generating about 0.13 per unit of volatility. If you would invest  77.00  in New Tech Capital on October 9, 2024 and sell it today you would earn a total of  5.00  from holding New Tech Capital or generate 6.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	80.0%
Values	Daily Returns

Stellar  vs.  New Tech Capital

Stellar

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

New Tech Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Tech Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Stellar and New Tech

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

The idea behind Stellar and New Tech Capital 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.