Correlation Between Polygon and Terra

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Can any of the company-specific risk be diversified away by investing in both Polygon 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 Polygon and Terra into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Polygon and Terra, you can compare the effects of market volatilities on Polygon 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 Polygon with a short position of Terra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polygon and Terra.

Diversification Opportunities for Polygon and Terra

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Polygon and Terra is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and Terra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terra and Polygon 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 Polygon 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 Polygon i.e., Polygon and Terra go up and down completely randomly.

Pair Corralation between Polygon and Terra

Assuming the 90 days trading horizon Polygon is expected to generate 13.38 times less return on investment than Terra. But when comparing it to its historical volatility, Polygon is 1.82 times less risky than Terra. It trades about 0.03 of its potential returns per unit of risk. Terra is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  71.00  in Terra on December 30, 2023 and sell it today you would earn a total of  43.00  from holding Terra or generate 60.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Polygon  vs.  Terra

 Performance 
       Timeline  
Polygon 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Polygon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Polygon exhibited solid returns over the last few months and may actually be approaching a breakup point.
Terra 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Terra are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Terra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Polygon and Terra Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Polygon and Terra

The main advantage of trading using opposite Polygon and Terra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon 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 Polygon 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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