Correlation Between SOLVE and CEL
Can any of the company-specific risk be diversified away by investing in both SOLVE and CEL 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 SOLVE and CEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOLVE and CEL, you can compare the effects of market volatilities on SOLVE and CEL 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 SOLVE with a short position of CEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOLVE and CEL.
Diversification Opportunities for SOLVE and CEL
Poor diversification
The 3 months correlation between SOLVE and CEL is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding SOLVE and CEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEL and SOLVE 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 SOLVE are associated (or correlated) with CEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEL has no effect on the direction of SOLVE i.e., SOLVE and CEL go up and down completely randomly.
Pair Corralation between SOLVE and CEL
Assuming the 90 days trading horizon SOLVE is expected to generate 0.55 times more return on investment than CEL. However, SOLVE is 1.83 times less risky than CEL. It trades about 0.03 of its potential returns per unit of risk. CEL is currently generating about 0.01 per unit of risk. If you would invest 2.03 in SOLVE on January 21, 2024 and sell it today you would earn a total of 0.02 from holding SOLVE or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SOLVE vs. CEL
Performance |
| Timeline |
| SOLVE |
| CEL |
SOLVE and CEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOLVE and CEL
The main advantage of trading using opposite SOLVE and CEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOLVE position performs unexpectedly, CEL 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 CEL will offset losses from the drop in CEL's long position.The idea behind SOLVE and CEL 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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