Correlation Between COV and SYS

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

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

Diversification Opportunities for COV and SYS

0.49

Correlation Coefficient

COV  SYS

Very weak diversification

The 3 months correlation between COV and SYS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding COV and SYS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SYS and COV 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 COV are associated (or correlated) with SYS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SYS has no effect on the direction of COV i.e., COV and SYS go up and down completely randomly.

Pair Corralation between COV and SYS

Assuming the 90 days trading horizon COV is expected to generate 0.57 times more return on investment than SYS. However, COV is 1.77 times less risky than SYS. It trades about 0.22 of its potential returns per unit of risk. SYS is currently generating about 0.11 per unit of risk. If you would invest  22.00  in COV on September 2, 2024 and sell it today you would earn a total of  14.00  from holding COV or generate 63.64% return on investment over 90 days.

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

COV  vs.  SYS

COV

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in COV are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, COV exhibited solid returns over the last few months and may actually be approaching a breakup point.

SYS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SYS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SYS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COV and SYS

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

The idea behind COV and SYS 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.