Correlation Between NEO and Ontology
Can any of the company-specific risk be diversified away by investing in both NEO and Ontology 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 NEO and Ontology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEO and Ontology, you can compare the effects of market volatilities on NEO and Ontology 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 NEO with a short position of Ontology. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and Ontology.
Diversification Opportunities for NEO and Ontology
Almost no diversification
The 3 months correlation between NEO and Ontology is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding NEO and Ontology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ontology and NEO 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 NEO are associated (or correlated) with Ontology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ontology has no effect on the direction of NEO i.e., NEO and Ontology go up and down completely randomly.
Pair Corralation between NEO and Ontology
Assuming the 90 days trading horizon NEO is expected to generate 1.28 times less return on investment than Ontology. But when comparing it to its historical volatility, NEO is 1.18 times less risky than Ontology. It trades about 0.11 of its potential returns per unit of risk. Ontology is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 35.00 in Ontology on January 26, 2024 and sell it today you would earn a total of 6.00 from holding Ontology or generate 17.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NEO vs. Ontology
Performance |
| Timeline |
| NEO |
| Ontology |
NEO and Ontology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEO and Ontology
The main advantage of trading using opposite NEO and Ontology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO position performs unexpectedly, Ontology 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 Ontology will offset losses from the drop in Ontology's long position.The idea behind NEO and Ontology 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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