Correlation Between Quant and EOS
Can any of the company-specific risk be diversified away by investing in both Quant and EOS 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 EOS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Quant and EOS, you can compare the effects of market volatilities on Quant and EOS 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 EOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quant and EOS.
Diversification Opportunities for Quant and EOS
Very poor diversification
The 3 months correlation between Quant and EOS is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Quant and EOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOS 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 EOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOS has no effect on the direction of Quant i.e., Quant and EOS go up and down completely randomly.
Pair Corralation between Quant and EOS
Assuming the 90 days trading horizon Quant is expected to generate 0.68 times more return on investment than EOS. However, Quant is 1.48 times less risky than EOS. It trades about -0.12 of its potential returns per unit of risk. EOS is currently generating about -0.1 per unit of risk. If you would invest 11,237 in Quant on January 17, 2024 and sell it today you would lose (1,656) from holding Quant or give up 14.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Quant vs. EOS
Performance |
| Timeline |
| Quant |
| EOS |
Quant and EOS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Quant and EOS
The main advantage of trading using opposite Quant and EOS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quant position performs unexpectedly, EOS 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 EOS will offset losses from the drop in EOS's long position.The idea behind Quant and EOS 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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