Correlation Between Black Diamond and Extreme Networks

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

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

Diversification Opportunities for Black Diamond and Extreme Networks

-0.58

Correlation Coefficient

Black Diamond  Extreme Networks

Excellent diversification

The 3 months correlation between Black and Extreme is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Black Diamond Therapeutics and Extreme Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extreme Networks and Black Diamond 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 Black Diamond Therapeutics are associated (or correlated) with Extreme Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extreme Networks has no effect on the direction of Black Diamond i.e., Black Diamond and Extreme Networks go up and down completely randomly.

Pair Corralation between Black Diamond and Extreme Networks

Given the investment horizon of 90 days Black Diamond Therapeutics is expected to under-perform the Extreme Networks. In addition to that, Black Diamond is 1.76 times more volatile than Extreme Networks. It trades about -0.17 of its total potential returns per unit of risk. Extreme Networks is currently generating about 0.1 per unit of volatility. If you would invest  1,395  in Extreme Networks on September 21, 2024 and sell it today you would earn a total of  403.00  from holding Extreme Networks or generate 28.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.07%
Values	Daily Returns

Black Diamond Therapeutics  vs.  Extreme Networks

Black Diamond Therap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Diamond Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Extreme Networks

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Extreme Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Diamond and Extreme Networks

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

The idea behind Black Diamond Therapeutics and Extreme Networks 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.