Correlation Between Polygon and LEND
Can any of the company-specific risk be diversified away by investing in both Polygon and LEND 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 LEND into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Polygon and LEND, you can compare the effects of market volatilities on Polygon and LEND 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 LEND. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polygon and LEND.
Diversification Opportunities for Polygon and LEND
Good diversification
The 3 months correlation between Polygon and LEND is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and LEND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEND 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 LEND. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEND has no effect on the direction of Polygon i.e., Polygon and LEND go up and down completely randomly.
Pair Corralation between Polygon and LEND
Assuming the 90 days trading horizon Polygon is expected to generate 17.75 times less return on investment than LEND. But when comparing it to its historical volatility, Polygon is 7.4 times less risky than LEND. It trades about 0.02 of its potential returns per unit of risk. LEND is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 0.00 in LEND on January 26, 2024 and sell it today you would earn a total of 127.00 from holding LEND or generate 9.223372036854776E16% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 99.81% |
Values | Daily Returns |
Polygon vs. LEND
Performance |
Timeline |
Polygon |
LEND |
Polygon and LEND Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Polygon and LEND
The main advantage of trading using opposite Polygon and LEND positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon position performs unexpectedly, LEND 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 LEND will offset losses from the drop in LEND's long position.The idea behind Polygon and LEND 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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