Correlation Between VIBE and HOT

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

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

Diversification Opportunities for VIBE and HOT

0.08

Correlation Coefficient

VIBE  HOT

Significant diversification

The 3 months correlation between VIBE and HOT is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding VIBE and HOT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOT 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 HOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOT has no effect on the direction of VIBE i.e., VIBE and HOT go up and down completely randomly.

Pair Corralation between VIBE and HOT

Assuming the 90 days trading horizon VIBE is expected to generate 4.71 times more return on investment than HOT. However, VIBE is 4.71 times more volatile than HOT. It trades about 0.1 of its potential returns per unit of risk. HOT is currently generating about 0.23 per unit of risk. 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

VIBE  vs.  HOT

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 weak fundamental indicators, VIBE exhibited solid returns over the last few months and may actually be approaching a breakup point.

HOT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HOT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, HOT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VIBE and HOT

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

The idea behind VIBE and HOT 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.