Correlation Between ABBC and Cosmos

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

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

Diversification Opportunities for ABBC and Cosmos

0.0

Correlation Coefficient

ABBC  Cosmos

Pay attention - limited upside

The 3 months correlation between ABBC and Cosmos is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding ABBC and Cosmos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosmos and ABBC 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 ABBC are associated (or correlated) with Cosmos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosmos has no effect on the direction of ABBC i.e., ABBC and Cosmos go up and down completely randomly.

Pair Corralation between ABBC and Cosmos

Assuming the 90 days trading horizon ABBC is expected to generate 1.68 times more return on investment than Cosmos. However, ABBC is 1.68 times more volatile than Cosmos. It trades about 0.0 of its potential returns per unit of risk. Cosmos is currently generating about 0.0 per unit of risk. If you would invest  9.93  in ABBC on January 19, 2024 and sell it today you would lose (7.89) from holding ABBC or give up 79.46% of portfolio value over 90 days.

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

ABBC  vs.  Cosmos

ABBC

Risk-Adjusted Performance

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Very Weak

Over the last 90 days ABBC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for ABBC shareholders.

Cosmos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cosmos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Cosmos shareholders.

Pair Trading with ABBC and Cosmos

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

The idea behind ABBC and Cosmos 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.