Correlation Between Numeraire and IOST

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

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

Diversification Opportunities for Numeraire and IOST

0.92

Correlation Coefficient

Numeraire  IOST

Almost no diversification

The 3 months correlation between Numeraire and IOST is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Numeraire and IOST in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOST and Numeraire 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 Numeraire are associated (or correlated) with IOST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOST has no effect on the direction of Numeraire i.e., Numeraire and IOST go up and down completely randomly.

Pair Corralation between Numeraire and IOST

Assuming the 90 days trading horizon Numeraire is expected to generate 1.13 times less return on investment than IOST. In addition to that, Numeraire is 1.04 times more volatile than IOST. It trades about 0.17 of its total potential returns per unit of risk. IOST is currently generating about 0.2 per unit of volatility. If you would invest  0.47  in IOST on September 2, 2024 and sell it today you would earn a total of  0.37  from holding IOST or generate 78.23% return on investment over 90 days.

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

Numeraire  vs.  IOST

Numeraire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Numeraire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Numeraire exhibited solid returns over the last few months and may actually be approaching a breakup point.

IOST

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IOST are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, IOST exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Numeraire and IOST

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

The idea behind Numeraire and IOST 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.