Can any of the company-specific risk be diversified away by investing in both Weibo Corp and Outbrain 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 Weibo Corp and Outbrain into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Weibo Corp and Outbrain, you can compare the effects of market volatilities on Weibo Corp and Outbrain 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 Weibo Corp with a short position of Outbrain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weibo Corp and Outbrain.
Diversification Opportunities for Weibo Corp and Outbrain
The 3 months correlation between Weibo and Outbrain is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Weibo Corp and Outbrain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outbrain and Weibo Corp 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 Weibo Corp are associated (or correlated) with Outbrain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outbrain has no effect on the direction of Weibo Corp i.e., Weibo Corp and Outbrain go up and down completely randomly.
Allowing for the 90-day total investment horizon Weibo Corp is expected to under-perform the Outbrain. But the stock apears to be less risky and, when comparing its historical volatility, Weibo Corp is 1.05 times less risky than Outbrain. The stock trades about -0.15 of its potential returns per unit of risk. The Outbrain is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 406.00 in Outbrain on September 2, 2023 and sell it today you would lose (25.00) from holding Outbrain or give up 6.16% of portfolio value over 90 days.
Over the last 90 days Weibo Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Outbrain has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
The main advantage of trading using opposite Weibo Corp and Outbrain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weibo Corp position performs unexpectedly, Outbrain 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 Outbrain will offset losses from the drop in Outbrain's long position.
The idea behind Weibo Corp and Outbrain 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 the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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