Correlation Between VIBE and DENT

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

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

Diversification Opportunities for VIBE and DENT

0.06

Correlation Coefficient

VIBE  DENT

Significant diversification

The 3 months correlation between VIBE and DENT is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding VIBE and DENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENT and VIBE 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 VIBE are associated (or correlated) with DENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENT has no effect on the direction of VIBE i.e., VIBE and DENT go up and down completely randomly.

Pair Corralation between VIBE and DENT

Assuming the 90 days trading horizon VIBE is expected to generate 5.33 times more return on investment than DENT. However, VIBE is 5.33 times more volatile than DENT. It trades about 0.1 of its potential returns per unit of risk. DENT is currently generating about 0.28 per unit of risk. If you would invest  0.12  in VIBE on September 3, 2024 and sell it today you would lose (0.02) from holding VIBE or give up 16.81% of portfolio value over 90 days.

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

VIBE  vs.  DENT

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.

DENT

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VIBE and DENT

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

The idea behind VIBE and DENT 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.