Correlation Between Paradise and INSUN Environmental

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

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

Diversification Opportunities for Paradise and INSUN Environmental

0.85

Correlation Coefficient

Paradise  INSUN Environmental

Very poor diversification

The 3 months correlation between Paradise and INSUN is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Paradise Co and INSUN Environmental New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSUN Environmental New and Paradise 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 Paradise Co are associated (or correlated) with INSUN Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSUN Environmental New has no effect on the direction of Paradise i.e., Paradise and INSUN Environmental go up and down completely randomly.

Pair Corralation between Paradise and INSUN Environmental

Assuming the 90 days trading horizon Paradise Co is expected to under-perform the INSUN Environmental. But the stock apears to be less risky and, when comparing its historical volatility, Paradise Co is 1.28 times less risky than INSUN Environmental. The stock trades about -0.09 of its potential returns per unit of risk. The INSUN Environmental New is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  583,000  in INSUN Environmental New on September 22, 2024 and sell it today you would lose (47,000) from holding INSUN Environmental New or give up 8.06% of portfolio value over 90 days.

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

Paradise Co  vs.  INSUN Environmental New

Paradise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paradise Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

INSUN Environmental New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INSUN Environmental New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Paradise and INSUN Environmental

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

The idea behind Paradise Co and INSUN Environmental New 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.