Correlation Between Quant and REP

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

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

Diversification Opportunities for Quant and REP

0.91

Correlation Coefficient

Quant  REP

Almost no diversification

The 3 months correlation between Quant and REP is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Quant and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP 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 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 Quant i.e., Quant and REP go up and down completely randomly.

Pair Corralation between Quant and REP

Assuming the 90 days trading horizon Quant is expected to under-perform the REP. But the crypto coin apears to be less risky and, when comparing its historical volatility, Quant is 1.54 times less risky than REP. The crypto coin trades about -0.25 of its potential returns per unit of risk. The REP is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  124.00  in REP on January 25, 2024 and sell it today you would lose (31.00) from holding REP or give up 25.0% of portfolio value over 90 days.

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

Quant  vs.  REP

Quant

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Quant are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Quant 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

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 Quant and REP

The main advantage of trading using opposite Quant and REP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quant 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 Quant 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.