Correlation Between REN and API3

Can any of the company-specific risk be diversified away by investing in both REN and API3 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 REN and API3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between REN and API3, you can compare the effects of market volatilities on REN and API3 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 REN with a short position of API3. Check out your portfolio center. Please also check ongoing floating volatility patterns of REN and API3.

Diversification Opportunities for REN and API3

0.75

Correlation Coefficient

REN  API3

Poor diversification

The 3 months correlation between REN and API3 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding REN and API3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on API3 and REN 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 REN are associated (or correlated) with API3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of API3 has no effect on the direction of REN i.e., REN and API3 go up and down completely randomly.

Pair Corralation between REN and API3

Assuming the 90 days trading horizon REN is expected to generate 1.3 times less return on investment than API3. In addition to that, REN is 1.19 times more volatile than API3. It trades about 0.11 of its total potential returns per unit of risk. API3 is currently generating about 0.17 per unit of volatility. If you would invest  135.00  in API3 on September 2, 2024 and sell it today you would earn a total of  96.00  from holding API3 or generate 71.11% return on investment over 90 days.

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

REN  vs.  API3

REN

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in REN are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REN exhibited solid returns over the last few months and may actually be approaching a breakup point.

API3

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in API3 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, API3 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with REN and API3

The main advantage of trading using opposite REN and API3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REN position performs unexpectedly, API3 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 API3 will offset losses from the drop in API3's long position.

The idea behind REN and API3 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.