Correlation Between Wrapped EETH and IQC

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

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

Diversification Opportunities for Wrapped EETH and IQC

0.96

Correlation Coefficient

Wrapped EETH  IQC

Almost no diversification

The 3 months correlation between Wrapped and IQC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped eETH and IQC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQC and Wrapped EETH 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 Wrapped eETH are associated (or correlated) with IQC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQC has no effect on the direction of Wrapped EETH i.e., Wrapped EETH and IQC go up and down completely randomly.

Pair Corralation between Wrapped EETH and IQC

Assuming the 90 days trading horizon Wrapped EETH is expected to generate 1.17 times less return on investment than IQC. In addition to that, Wrapped EETH is 1.1 times more volatile than IQC. It trades about 0.2 of its total potential returns per unit of risk. IQC is currently generating about 0.25 per unit of volatility. If you would invest  0.05  in IQC on September 1, 2024 and sell it today you would earn a total of  0.03  from holding IQC or generate 67.83% return on investment over 90 days.

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

Wrapped eETH  vs.  IQC

Wrapped eETH

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wrapped eETH are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Wrapped EETH exhibited solid returns over the last few months and may actually be approaching a breakup point.

IQC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IQC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, IQC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wrapped EETH and IQC

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

The idea behind Wrapped eETH and IQC 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.