Correlation Between ITC and Flare

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

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

Diversification Opportunities for ITC and Flare

-0.34

Correlation Coefficient

ITC  Flare

Very good diversification

The 3 months correlation between ITC and Flare is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding ITC and Flare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flare and ITC 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 ITC are associated (or correlated) with Flare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flare has no effect on the direction of ITC i.e., ITC and Flare go up and down completely randomly.

Pair Corralation between ITC and Flare

Assuming the 90 days trading horizon ITC is expected to under-perform the Flare. But the crypto coin apears to be less risky and, when comparing its historical volatility, ITC is 10.24 times less risky than Flare. The crypto coin trades about -0.01 of its potential returns per unit of risk. The Flare is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Flare on January 25, 2024 and sell it today you would earn a total of  3.21  from holding Flare or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.96%
Values	Daily Returns

ITC  vs.  Flare

ITC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ITC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Flare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Flare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITC and Flare

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

The idea behind ITC and Flare 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.