Correlation Between Numeraire and Tensor

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

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

Diversification Opportunities for Numeraire and Tensor

0.77

Correlation Coefficient

Numeraire  Tensor

Poor diversification

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

Pair Corralation between Numeraire and Tensor

Assuming the 90 days trading horizon Numeraire is expected to generate 1.67 times less return on investment than Tensor. But when comparing it to its historical volatility, Numeraire is 1.46 times less risky than Tensor. It trades about 0.17 of its potential returns per unit of risk. Tensor is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Tensor on September 3, 2024 and sell it today you would earn a total of  37.00  from holding Tensor or generate 115.63% return on investment over 90 days.

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

Numeraire  vs.  Tensor

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.

Tensor

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tensor are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Tensor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Numeraire and Tensor

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

The idea behind Numeraire and Tensor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.