Correlation Between Quant and True USD
Can any of the company-specific risk be diversified away by investing in both Quant and True USD 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 True USD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Quant and True USD, you can compare the effects of market volatilities on Quant and True USD 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 True USD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quant and True USD.
Diversification Opportunities for Quant and True USD
Very weak diversification
The 3 months correlation between Quant and True is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Quant and True USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True USD 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 True USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True USD has no effect on the direction of Quant i.e., Quant and True USD go up and down completely randomly.
Pair Corralation between Quant and True USD
Assuming the 90 days trading horizon Quant is expected to generate 13.41 times more return on investment than True USD. However, Quant is 13.41 times more volatile than True USD. It trades about 0.04 of its potential returns per unit of risk. True USD is currently generating about 0.0 per unit of risk. If you would invest 7,446 in Quant on February 3, 2024 and sell it today you would earn a total of 2,784 from holding Quant or generate 37.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Quant vs. True USD
Performance |
| Timeline |
| Quant |
| True USD |
Quant and True USD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Quant and True USD
The main advantage of trading using opposite Quant and True USD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quant position performs unexpectedly, True USD 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 True USD will offset losses from the drop in True USD's long position.The idea behind Quant and True USD 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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