Correlation Between Salesforce and Twitter

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Can any of the company-specific risk be diversified away by investing in both Salesforce and Twitter 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 Salesforce and Twitter into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Salesforce and Twitter, you can compare the effects of market volatilities on Salesforce and Twitter 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 Salesforce with a short position of Twitter. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and Twitter.

Diversification Opportunities for Salesforce and Twitter

-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between Salesforce and Twitter is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Twitter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twitter and Salesforce 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 Salesforce are associated (or correlated) with Twitter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twitter has no effect on the direction of Salesforce i.e., Salesforce and Twitter go up and down completely randomly.

Pair Corralation between Salesforce and Twitter

Considering the 90-day investment horizon Salesforce is expected to under-perform the Twitter. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.37 times less risky than Twitter. The stock trades about -0.14 of its potential returns per unit of risk. The Twitter is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,578  in Twitter on February 27, 2022 and sell it today you would lose (561.00)  from holding Twitter or give up 12.25% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Salesforce  vs.  Twitter

 Performance (%) 
      Timeline 
Salesforce 
Salesforce Performance
0 of 100
Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively steady which may send shares a bit higher in June 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Salesforce Price Channel

Twitter 
Twitter Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Twitter are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

Twitter Price Channel

Salesforce and Twitter Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Salesforce and Twitter

The main advantage of trading using opposite Salesforce and Twitter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce position performs unexpectedly, Twitter 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 Twitter will offset losses from the drop in Twitter's long position.
The idea behind Salesforce and Twitter 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.
Check out your portfolio center. 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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