Correlation Between Ontology and REP

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

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

Diversification Opportunities for Ontology and REP

0.74

Correlation Coefficient

Ontology  REP

Poor diversification

The 3 months correlation between Ontology and REP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ontology and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP and Ontology 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 Ontology 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 Ontology i.e., Ontology and REP go up and down completely randomly.

Pair Corralation between Ontology and REP

Assuming the 90 days trading horizon Ontology is expected to generate 1.61 times less return on investment than REP. But when comparing it to its historical volatility, Ontology is 2.92 times less risky than REP. It trades about 0.03 of its potential returns per unit of risk. REP is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,124  in REP on January 25, 2024 and sell it today you would lose (1,031) from holding REP or give up 91.73% of portfolio value over 90 days.

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

Ontology  vs.  REP

Ontology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ontology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Ontology exhibited solid returns over the last few months and may actually be approaching a breakup point.

REP

Risk-Adjusted Performance

4 of 100

Insignificant

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 Ontology and REP

The main advantage of trading using opposite Ontology and REP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ontology 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 Ontology 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.

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.