Correlation Between Stellar and RCN

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Can any of the company-specific risk be diversified away by investing in both Stellar and RCN 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 Stellar and RCN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stellar and RCN, you can compare the effects of market volatilities on Stellar and RCN 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 Stellar with a short position of RCN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stellar and RCN.

Diversification Opportunities for Stellar and RCN

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Stellar and RCN is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and RCN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCN and Stellar 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 Stellar are associated (or correlated) with RCN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCN has no effect on the direction of Stellar i.e., Stellar and RCN go up and down completely randomly.

Pair Corralation between Stellar and RCN

Assuming the 90 days trading horizon Stellar is expected to generate 1.27 times less return on investment than RCN. In addition to that, Stellar is 1.14 times more volatile than RCN. It trades about 0.18 of its total potential returns per unit of risk. RCN is currently generating about 0.27 per unit of volatility. If you would invest  0.06  in RCN on April 21, 2025 and sell it today you would earn a total of  0.07  from holding RCN or generate 104.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Stellar  vs.  RCN

 Performance 
       Timeline  
Stellar 

Risk-Adjusted Performance

Good

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

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in RCN are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, RCN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stellar and RCN Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Stellar and RCN

The main advantage of trading using opposite Stellar and RCN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stellar position performs unexpectedly, RCN 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 RCN will offset losses from the drop in RCN's long position.
The idea behind Stellar and RCN 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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