Correlation Between Wormhole and Flare

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

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

Diversification Opportunities for Wormhole and Flare

-0.19

Correlation Coefficient

Wormhole  Flare

Good diversification

The 3 months correlation between Wormhole and Flare is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Wormhole and Flare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flare and Wormhole 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 Wormhole are associated (or correlated) with Flare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flare has no effect on the direction of Wormhole i.e., Wormhole and Flare go up and down completely randomly.

Pair Corralation between Wormhole and Flare

Given the investment horizon of 90 days Wormhole is expected to generate 60.26 times more return on investment than Flare. However, Wormhole is 60.26 times more volatile than Flare. It trades about 0.21 of its potential returns per unit of risk. Flare is currently generating about -0.35 per unit of risk. If you would invest  0.00  in Wormhole on January 30, 2024 and sell it today you would earn a total of  62.00  from holding Wormhole or generate 9.223372036854776E16% return on investment over 90 days.

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

Wormhole  vs.  Flare

Wormhole

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wormhole are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Wormhole exhibited solid returns over the last few months and may actually be approaching a breakup point.

Flare

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Flare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wormhole and Flare

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

The idea behind Wormhole and Flare 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.