Correlation Between Papaya Growth and Western Acquisition

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

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

Diversification Opportunities for Papaya Growth and Western Acquisition

0.02

Correlation Coefficient

Papaya Growth  Western Acquisition

Significant diversification

The 3 months correlation between Papaya and Western is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Papaya Growth Opportunity and Western Acquisition Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Acquisition and Papaya Growth 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 Papaya Growth Opportunity are associated (or correlated) with Western Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Acquisition has no effect on the direction of Papaya Growth i.e., Papaya Growth and Western Acquisition go up and down completely randomly.

Pair Corralation between Papaya Growth and Western Acquisition

Given the investment horizon of 90 days Papaya Growth is expected to generate 11.62 times less return on investment than Western Acquisition. But when comparing it to its historical volatility, Papaya Growth Opportunity is 20.98 times less risky than Western Acquisition. It trades about 0.09 of its potential returns per unit of risk. Western Acquisition Ventures is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,038  in Western Acquisition Ventures on September 5, 2024 and sell it today you would earn a total of  54.00  from holding Western Acquisition Ventures or generate 5.2% return on investment over 90 days.

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

Papaya Growth Opportunity  vs.  Western Acquisition Ventures

Papaya Growth Opportunity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Papaya Growth Opportunity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Papaya Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Western Acquisition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Papaya Growth and Western Acquisition

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

The idea behind Papaya Growth Opportunity and Western Acquisition Ventures 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.