Correlation Between Harmony and VIBE

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

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

Diversification Opportunities for Harmony and VIBE

0.07

Correlation Coefficient

Harmony  VIBE

Significant diversification

The 3 months correlation between Harmony and VIBE is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Harmony and VIBE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIBE and Harmony 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 Harmony are associated (or correlated) with VIBE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIBE has no effect on the direction of Harmony i.e., Harmony and VIBE go up and down completely randomly.

Pair Corralation between Harmony and VIBE

Assuming the 90 days trading horizon Harmony is expected to generate 1.53 times less return on investment than VIBE. But when comparing it to its historical volatility, Harmony is 4.4 times less risky than VIBE. It trades about 0.27 of its potential returns per unit of risk. VIBE is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.12  in VIBE on September 1, 2024 and sell it today you would lose (0.02) from holding VIBE or give up 16.09% of portfolio value over 90 days.

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

Harmony  vs.  VIBE

Harmony

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harmony are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Harmony exhibited solid returns over the last few months and may actually be approaching a breakup point.

VIBE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VIBE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, VIBE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harmony and VIBE

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

The idea behind Harmony and VIBE 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.