Correlation Between Materialise and Good Vibrations

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

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

Diversification Opportunities for Materialise and Good Vibrations

0.7

Correlation Coefficient

Materialise  Good Vibrations

Poor diversification

The 3 months correlation between Materialise and Good is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Materialise NV and Good Vibrations Shoes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Good Vibrations Shoes and Materialise 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 Materialise NV are associated (or correlated) with Good Vibrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Good Vibrations Shoes has no effect on the direction of Materialise i.e., Materialise and Good Vibrations go up and down completely randomly.

Pair Corralation between Materialise and Good Vibrations

Given the investment horizon of 90 days Materialise is expected to generate 1.44 times less return on investment than Good Vibrations. But when comparing it to its historical volatility, Materialise NV is 2.57 times less risky than Good Vibrations. It trades about 0.19 of its potential returns per unit of risk. Good Vibrations Shoes is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.23  in Good Vibrations Shoes on September 16, 2024 and sell it today you would earn a total of  0.11  from holding Good Vibrations Shoes or generate 47.83% return on investment over 90 days.

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

Materialise NV  vs.  Good Vibrations Shoes

Materialise NV

Risk-Adjusted Performance

14 of 100

Good

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

Good Vibrations Shoes

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Good Vibrations Shoes are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Good Vibrations demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Materialise and Good Vibrations

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

The idea behind Materialise NV and Good Vibrations Shoes 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.