Correlation Between Fancy Wood and VGI Public

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

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

Diversification Opportunities for Fancy Wood and VGI Public

0.54

Correlation Coefficient

Fancy Wood  VGI Public

Very weak diversification

The 3 months correlation between Fancy and VGI is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Fancy Wood Industries and VGI Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VGI Public and Fancy Wood 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 Fancy Wood Industries are associated (or correlated) with VGI Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VGI Public has no effect on the direction of Fancy Wood i.e., Fancy Wood and VGI Public go up and down completely randomly.

Pair Corralation between Fancy Wood and VGI Public

Assuming the 90 days trading horizon Fancy Wood Industries is expected to under-perform the VGI Public. But the stock apears to be less risky and, when comparing its historical volatility, Fancy Wood Industries is 54.16 times less risky than VGI Public. The stock trades about -0.09 of its potential returns per unit of risk. The VGI Public is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  286.00  in VGI Public on August 20, 2024 and sell it today you would lose (50.00) from holding VGI Public or give up 17.48% of portfolio value over 90 days.

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

Fancy Wood Industries  vs.  VGI Public

Fancy Wood Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fancy Wood Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Fancy Wood sustained solid returns over the last few months and may actually be approaching a breakup point.

VGI Public

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VGI Public are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, VGI Public sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fancy Wood and VGI Public

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

The idea behind Fancy Wood Industries and VGI Public 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.