Correlation Between TWOWAY Communications and Cameo Communications

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

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

Diversification Opportunities for TWOWAY Communications and Cameo Communications

0.36

Correlation Coefficient

TWOWAY Communications  Cameo Communications

Weak diversification

The 3 months correlation between TWOWAY and Cameo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding TWOWAY Communications and Cameo Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cameo Communications and TWOWAY Communications 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 TWOWAY Communications are associated (or correlated) with Cameo Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cameo Communications has no effect on the direction of TWOWAY Communications i.e., TWOWAY Communications and Cameo Communications go up and down completely randomly.

Pair Corralation between TWOWAY Communications and Cameo Communications

Assuming the 90 days trading horizon TWOWAY Communications is expected to generate 3.82 times more return on investment than Cameo Communications. However, TWOWAY Communications is 3.82 times more volatile than Cameo Communications. It trades about 0.84 of its potential returns per unit of risk. Cameo Communications is currently generating about 0.11 per unit of risk. If you would invest  11,200  in TWOWAY Communications on December 4, 2024 and sell it today you would earn a total of  3,300  from holding TWOWAY Communications or generate 29.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	33.33%
Values	Daily Returns

TWOWAY Communications  vs.  Cameo Communications

TWOWAY Communications

Risk-Adjusted Performance

Solid

Over the last 90 days TWOWAY Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal basic indicators, TWOWAY Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Cameo Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cameo Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cameo Communications is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with TWOWAY Communications and Cameo Communications

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

The idea behind TWOWAY Communications and Cameo Communications 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.