Correlation Between True USD and YOU
Can any of the company-specific risk be diversified away by investing in both True USD and YOU 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 True USD and YOU into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between True USD and YOU, you can compare the effects of market volatilities on True USD and YOU 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 True USD with a short position of YOU. Check out your portfolio center. Please also check ongoing floating volatility patterns of True USD and YOU.
Diversification Opportunities for True USD and YOU
Poor diversification
The 3 months correlation between True and YOU is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding True USD and YOU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YOU and True USD 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 True USD are associated (or correlated) with YOU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YOU has no effect on the direction of True USD i.e., True USD and YOU go up and down completely randomly.
Pair Corralation between True USD and YOU
Assuming the 90 days trading horizon True USD is expected to generate 13.0 times less return on investment than YOU. But when comparing it to its historical volatility, True USD is 23.29 times less risky than YOU. It trades about 0.0 of its potential returns per unit of risk. YOU is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 0.31 in YOU on January 27, 2024 and sell it today you would lose (0.29) from holding YOU or give up 92.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
True USD vs. YOU
Performance |
| Timeline |
| True USD |
| YOU |
True USD and YOU Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with True USD and YOU
The main advantage of trading using opposite True USD and YOU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if True USD position performs unexpectedly, YOU 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 YOU will offset losses from the drop in YOU's long position.The idea behind True USD and YOU 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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