Correlation Between Omni Small and Applied Finance

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

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

Diversification Opportunities for Omni Small and Applied Finance

0.96

Correlation Coefficient

Omni Small  Applied Finance

Almost no diversification

The 3 months correlation between Omni and Applied is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Omni Small Cap Value and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer and Omni Small 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 Omni Small Cap Value are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Omni Small i.e., Omni Small and Applied Finance go up and down completely randomly.

Pair Corralation between Omni Small and Applied Finance

Assuming the 90 days horizon Omni Small is expected to generate 5.75 times less return on investment than Applied Finance. In addition to that, Omni Small is 1.57 times more volatile than Applied Finance Explorer. It trades about 0.01 of its total potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.1 per unit of volatility. If you would invest  2,224  in Applied Finance Explorer on September 13, 2024 and sell it today you would earn a total of  144.00  from holding Applied Finance Explorer or generate 6.47% return on investment over 90 days.

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

Omni Small Cap Value  vs.  Applied Finance Explorer

Omni Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omni Small Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Omni Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Applied Finance Explorer

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Explorer are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Applied Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Omni Small and Applied Finance

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

The idea behind Omni Small Cap Value and Applied Finance Explorer 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.