Can any of the company-specific risk be diversified away by investing in both Formula Systems and Aurora Innovation 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 Formula Systems and Aurora Innovation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formula Systems 1985 and Aurora Innovation, you can compare the effects of market volatilities on Formula Systems and Aurora Innovation 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 Formula Systems with a short position of Aurora Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and Aurora Innovation.
Diversification Opportunities for Formula Systems and Aurora Innovation
The 3 months correlation between Formula and Aurora is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and Aurora Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Innovation and Formula Systems 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 Formula Systems 1985 are associated (or correlated) with Aurora Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Innovation has no effect on the direction of Formula Systems i.e., Formula Systems and Aurora Innovation go up and down completely randomly.
Pair Corralation between Formula Systems and Aurora Innovation
Assuming the 90 days horizon Formula Systems 1985 is expected to under-perform the Aurora Innovation. But the stock apears to be less risky and, when comparing its historical volatility, Formula Systems 1985 is 1.52 times less risky than Aurora Innovation. The stock trades about -0.1 of its potential returns per unit of risk. The Aurora Innovation is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 330.00 in Aurora Innovation on September 9, 2023 and sell it today you would lose (67.00) from holding Aurora Innovation or give up 20.3% of portfolio value over 90 days.
Over the last 90 days Formula Systems 1985 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Aurora Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Formula Systems and Aurora Innovation Volatility Contrast
Predicted Return Density
Pair Trading with Formula Systems and Aurora Innovation
The main advantage of trading using opposite Formula Systems and Aurora Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formula Systems position performs unexpectedly, Aurora Innovation 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 Aurora Innovation will offset losses from the drop in Aurora Innovation's long position.
The idea behind Formula Systems 1985 and Aurora Innovation 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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