Correlation Between Orbs and REP

Can any of the company-specific risk be diversified away by investing in both Orbs and REP 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 Orbs and REP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Orbs and REP, you can compare the effects of market volatilities on Orbs and REP 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 Orbs with a short position of REP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orbs and REP.

Diversification Opportunities for Orbs and REP

0.86

Correlation Coefficient

Orbs  REP

Very poor diversification

The 3 months correlation between Orbs and REP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Orbs and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP and Orbs 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 Orbs are associated (or correlated) with REP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REP has no effect on the direction of Orbs i.e., Orbs and REP go up and down completely randomly.

Pair Corralation between Orbs and REP

Assuming the 90 days trading horizon Orbs is expected to generate 0.65 times more return on investment than REP. However, Orbs is 1.53 times less risky than REP. It trades about -0.09 of its potential returns per unit of risk. REP is currently generating about -0.14 per unit of risk. If you would invest  4.01  in Orbs on January 30, 2024 and sell it today you would lose (0.38) from holding Orbs or give up 9.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Orbs  vs.  REP

Orbs

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orbs are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Orbs exhibited solid returns over the last few months and may actually be approaching a breakup point.

REP

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in REP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REP exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orbs and REP

The main advantage of trading using opposite Orbs and REP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orbs position performs unexpectedly, REP 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 REP will offset losses from the drop in REP's long position.

The idea behind Orbs and REP 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.