Correlation Between Ontology and REP
Can any of the company-specific risk be diversified away by investing in both Ontology and REP 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 Ontology and REP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ontology and REP, you can compare the effects of market volatilities on Ontology and REP 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 Ontology with a short position of REP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ontology and REP.
Diversification Opportunities for Ontology and REP
Very poor diversification
The 3 months correlation between Ontology and REP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ontology and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP and Ontology 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 Ontology are associated (or correlated) with REP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REP has no effect on the direction of Ontology i.e., Ontology and REP go up and down completely randomly.
Pair Corralation between Ontology and REP
Assuming the 90 days trading horizon Ontology is expected to generate 1.3 times more return on investment than REP. However, Ontology is 1.3 times more volatile than REP. It trades about 0.11 of its potential returns per unit of risk. REP is currently generating about 0.02 per unit of risk. If you would invest 26.00 in Ontology on January 20, 2024 and sell it today you would earn a total of 7.00 from holding Ontology or generate 26.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ontology vs. REP
Performance |
| Timeline |
| Ontology |
| REP |
Ontology and REP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ontology and REP
The main advantage of trading using opposite Ontology and REP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ontology position performs unexpectedly, REP 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 REP will offset losses from the drop in REP's long position.The idea behind Ontology and REP 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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