Correlation Between Quant and Cronos

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

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

Diversification Opportunities for Quant and Cronos

0.76

Correlation Coefficient

Quant  Cronos

Poor diversification

The 3 months correlation between Quant and Cronos is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Quant and Cronos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cronos and Quant 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 Quant are associated (or correlated) with Cronos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cronos has no effect on the direction of Quant i.e., Quant and Cronos go up and down completely randomly.

Pair Corralation between Quant and Cronos

Assuming the 90 days trading horizon Quant is expected to generate 5.23 times less return on investment than Cronos. But when comparing it to its historical volatility, Quant is 1.14 times less risky than Cronos. It trades about 0.03 of its potential returns per unit of risk. Cronos is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7.71  in Cronos on January 20, 2024 and sell it today you would earn a total of  4.29  from holding Cronos or generate 55.64% return on investment over 90 days.

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

Quant  vs.  Cronos

Quant

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Quant are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Quant may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Cronos

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cronos are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Cronos exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Quant and Cronos

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

The idea behind Quant and Cronos 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.