Correlation Between Stellar and Terra

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

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

Diversification Opportunities for Stellar and Terra

0.87

Correlation Coefficient

Stellar  Terra

Very poor diversification

The 3 months correlation between Stellar and Terra is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Terra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terra and Stellar 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 Stellar are associated (or correlated) with Terra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terra has no effect on the direction of Stellar i.e., Stellar and Terra go up and down completely randomly.

Pair Corralation between Stellar and Terra

Assuming the 90 days trading horizon Stellar is expected to generate 1.63 times more return on investment than Terra. However, Stellar is 1.63 times more volatile than Terra. It trades about 0.3 of its potential returns per unit of risk. Terra is currently generating about 0.16 per unit of risk. If you would invest  9.16  in Stellar on September 3, 2024 and sell it today you would earn a total of  43.84  from holding Stellar or generate 478.6% return on investment over 90 days.

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

Stellar  vs.  Terra

Stellar

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Terra

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Terra are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Terra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stellar and Terra

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

The idea behind Stellar and Terra 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.