Correlation Between Cloud DX and M3

Can any of the company-specific risk be diversified away by investing in both Cloud DX and M3 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 Cloud DX and M3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cloud DX and M3 Inc, you can compare the effects of market volatilities on Cloud DX and M3 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 Cloud DX with a short position of M3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cloud DX and M3.

Diversification Opportunities for Cloud DX and M3

-0.35

Correlation Coefficient

Cloud DX  M3

Very good diversification

The 3 months correlation between Cloud and M3 is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Cloud DX and M3 Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M3 Inc and Cloud DX 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 Cloud DX are associated (or correlated) with M3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M3 Inc has no effect on the direction of Cloud DX i.e., Cloud DX and M3 go up and down completely randomly.

Pair Corralation between Cloud DX and M3

Assuming the 90 days horizon Cloud DX is expected to generate 5.18 times more return on investment than M3. However, Cloud DX is 5.18 times more volatile than M3 Inc. It trades about 0.03 of its potential returns per unit of risk. M3 Inc is currently generating about -0.06 per unit of risk. If you would invest  15.00  in Cloud DX on January 24, 2024 and sell it today you would lose (5.73) from holding Cloud DX or give up 38.2% of portfolio value over 90 days.

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

Cloud DX  vs.  M3 Inc

Cloud DX

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cloud DX are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Cloud DX reported solid returns over the last few months and may actually be approaching a breakup point.

M3 Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M3 Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cloud DX and M3

The main advantage of trading using opposite Cloud DX and M3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cloud DX position performs unexpectedly, M3 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 M3 will offset losses from the drop in M3's long position.

The idea behind Cloud DX and M3 Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.