Correlation Between STEPN and REN

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

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

Diversification Opportunities for STEPN and REN

0.77

Correlation Coefficient

STEPN  REN

Poor diversification

The 3 months correlation between STEPN and REN is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding STEPN and REN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REN and STEPN 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 STEPN are associated (or correlated) with REN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REN has no effect on the direction of STEPN i.e., STEPN and REN go up and down completely randomly.

Pair Corralation between STEPN and REN

Assuming the 90 days trading horizon STEPN is expected to generate 1.19 times more return on investment than REN. However, STEPN is 1.19 times more volatile than REN. It trades about 0.18 of its potential returns per unit of risk. REN is currently generating about 0.11 per unit of risk. If you would invest  11.00  in STEPN on September 2, 2024 and sell it today you would earn a total of  12.00  from holding STEPN or generate 109.09% return on investment over 90 days.

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

STEPN  vs.  REN

STEPN

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STEPN are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, STEPN exhibited solid returns over the last few months and may actually be approaching a breakup point.

REN

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in REN are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STEPN and REN

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

The idea behind STEPN and REN 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.