Correlation Between SOLVE and CET
Can any of the company-specific risk be diversified away by investing in both SOLVE and CET 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 SOLVE and CET into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOLVE and CET, you can compare the effects of market volatilities on SOLVE and CET 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 SOLVE with a short position of CET. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOLVE and CET.
Diversification Opportunities for SOLVE and CET
Poor diversification
The 3 months correlation between SOLVE and CET is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding SOLVE and CET in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CET and SOLVE 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 SOLVE are associated (or correlated) with CET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CET has no effect on the direction of SOLVE i.e., SOLVE and CET go up and down completely randomly.
Pair Corralation between SOLVE and CET
Assuming the 90 days trading horizon SOLVE is expected to under-perform the CET. In addition to that, SOLVE is 1.65 times more volatile than CET. It trades about -0.15 of its total potential returns per unit of risk. CET is currently generating about -0.02 per unit of volatility. If you would invest 3.75 in CET on January 26, 2024 and sell it today you would lose (0.08) from holding CET or give up 2.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
SOLVE vs. CET
Performance |
| Timeline |
| SOLVE |
| CET |
SOLVE and CET Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOLVE and CET
The main advantage of trading using opposite SOLVE and CET positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOLVE position performs unexpectedly, CET 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 CET will offset losses from the drop in CET's long position.The idea behind SOLVE and CET 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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