Correlation Between Polygon and REP

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

By analyzing existing cross correlation between Polygon and REP, you can compare the effects of market volatilities on Polygon and REP 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 REP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polygon and REP.

Diversification Opportunities for Polygon and REP

0.69

Correlation Coefficient

Polygon  REP

Poor diversification

The 3 months correlation between Polygon and REP is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP 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 REP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REP has no effect on the direction of Polygon i.e., Polygon and REP go up and down completely randomly.

Pair Corralation between Polygon and REP

Assuming the 90 days trading horizon Polygon is expected to generate 0.84 times more return on investment than REP. However, Polygon is 1.19 times less risky than REP. It trades about -0.1 of its potential returns per unit of risk. REP is currently generating about -0.09 per unit of risk. If you would invest  88.00  in Polygon on February 4, 2024 and sell it today you would lose (14.00) from holding Polygon or give up 15.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Polygon  vs.  REP

Polygon

Risk-Adjusted Performance

0 of 100

Very Weak

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

REP

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in REP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Polygon and REP

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

The idea behind Polygon and REP 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.