Correlation Between Quant and Stellar

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

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

Diversification Opportunities for Quant and Stellar

0.92

Correlation Coefficient

Quant  Stellar

Almost no diversification

The 3 months correlation between Quant and Stellar is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Quant and Stellar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stellar 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 Stellar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stellar has no effect on the direction of Quant i.e., Quant and Stellar go up and down completely randomly.

Pair Corralation between Quant and Stellar

Assuming the 90 days trading horizon Quant is expected to generate 2.75 times less return on investment than Stellar. But when comparing it to its historical volatility, Quant is 1.51 times less risky than Stellar. It trades about 0.02 of its potential returns per unit of risk. Stellar is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8.71  in Stellar on January 19, 2024 and sell it today you would earn a total of  2.29  from holding Stellar or generate 26.29% return on investment over 90 days.

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

Quant  vs.  Stellar

Quant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quant has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Stellar

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Quant and Stellar

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

The idea behind Quant and Stellar 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.