Correlation Between Polygon and THR
Can any of the company-specific risk be diversified away by investing in both Polygon and THR 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 Polygon and THR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Polygon and THR, you can compare the effects of market volatilities on Polygon and THR 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 Polygon with a short position of THR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Polygon and THR.
Diversification Opportunities for Polygon and THR
Good diversification
The 3 months correlation between Polygon and THR is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and THR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THR and Polygon 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 Polygon are associated (or correlated) with THR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THR has no effect on the direction of Polygon i.e., Polygon and THR go up and down completely randomly.
Pair Corralation between Polygon and THR
Assuming the 90 days trading horizon Polygon is expected to generate 13.15 times less return on investment than THR. But when comparing it to its historical volatility, Polygon is 5.39 times less risky than THR. It trades about 0.02 of its potential returns per unit of risk. THR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,266,600 in THR on January 26, 2024 and sell it today you would lose (216,885) from holding THR or give up 17.12% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 70.76% |
| Values | Daily Returns |
Polygon vs. THR
Performance |
| Timeline |
| Polygon |
| THR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Polygon and THR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Polygon and THR
The main advantage of trading using opposite Polygon and THR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polygon position performs unexpectedly, THR 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 THR will offset losses from the drop in THR's long position.The idea behind Polygon and THR 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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