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Can any of the company-specific risk be diversified away by investing in both Twitter and Plus500 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 Twitter and Plus500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Twitter and Plus500, you can compare the effects of market volatilities on Twitter and Plus500 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 Twitter with a short position of Plus500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Twitter and Plus500.

Diversification Opportunities for Twitter and Plus500

 0.43 Correlation Coefficient

Very weak diversification

The 3 months correlation between Twitter and Plus500 is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Twitter and Plus500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plus500 and Twitter 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 Twitter are associated (or correlated) with Plus500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plus500 has no effect on the direction of Twitter i.e., Twitter and Plus500 go up and down completely randomly.

Pair Corralation between Twitter and Plus500

Given the investment horizon of 90 days Twitter is expected to generate 0.7 times more return on investment than Plus500. However, Twitter is 1.43 times less risky than Plus500. It trades about 0.46 of its potential returns per unit of risk. Plus500 is currently generating about 0.22 per unit of risk. If you would invest  3,841  in Twitter on May 17, 2022 and sell it today you would earn a total of  585.00  from holding Twitter or generate 15.23% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Weak Accuracy 100.0% Values Daily Returns

 Performance (%)
 Timeline
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Twitter are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Twitter reported solid returns over the last few months and may actually be approaching a breakup point.

 Performance Backtest Predict
 Plus500 Correlation Profile
Plus500 Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Plus500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Plus500 may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Plus500 Price Channel

 Performance Backtest Predict

 Predicted Return Density
 Returns

The main advantage of trading using opposite Twitter and Plus500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Twitter position performs unexpectedly, Plus500 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 Plus500 will offset losses from the drop in Plus500's long position.

The idea behind Twitter and Plus500 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.