Correlation Between Vela Small and Vela Income

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

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

Diversification Opportunities for Vela Small and Vela Income

0.95

Correlation Coefficient

Vela Small  Vela Income

Almost no diversification

The 3 months correlation between Vela and Vela is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vela Small Cap and Vela Income Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela Income Opportunities and Vela Small 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 Vela Small Cap are associated (or correlated) with Vela Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela Income Opportunities has no effect on the direction of Vela Small i.e., Vela Small and Vela Income go up and down completely randomly.

Pair Corralation between Vela Small and Vela Income

Assuming the 90 days horizon Vela Small Cap is expected to generate 2.04 times more return on investment than Vela Income. However, Vela Small is 2.04 times more volatile than Vela Income Opportunities. It trades about -0.03 of its potential returns per unit of risk. Vela Income Opportunities is currently generating about -0.11 per unit of risk. If you would invest  2,008  in Vela Small Cap on September 12, 2024 and sell it today you would lose (8.00) from holding Vela Small Cap or give up 0.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Vela Small Cap  vs.  Vela Income Opportunities

Vela Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vela Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Vela Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vela Income Opportunities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vela Income Opportunities are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vela Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vela Small and Vela Income

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

The idea behind Vela Small Cap and Vela Income Opportunities 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.