Correlation Between EDISON INTL and Ribbon Communications

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

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

Diversification Opportunities for EDISON INTL and Ribbon Communications

-0.3

Correlation Coefficient

EDISON INTL  Ribbon Communications

Very good diversification

The 3 months correlation between EDISON and Ribbon is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding EDISON INTL and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications and EDISON INTL 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 EDISON INTL are associated (or correlated) with Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of EDISON INTL i.e., EDISON INTL and Ribbon Communications go up and down completely randomly.

Pair Corralation between EDISON INTL and Ribbon Communications

Assuming the 90 days trading horizon EDISON INTL is expected to under-perform the Ribbon Communications. But the stock apears to be less risky and, when comparing its historical volatility, EDISON INTL is 1.21 times less risky than Ribbon Communications. The stock trades about -0.17 of its potential returns per unit of risk. The Ribbon Communications is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  398.00  in Ribbon Communications on December 21, 2024 and sell it today you would lose (32.00) from holding Ribbon Communications or give up 8.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

EDISON INTL  vs.  Ribbon Communications

EDISON INTL

Risk-Adjusted Performance

Very Weak

Over the last 90 days EDISON INTL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Ribbon Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ribbon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ribbon Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with EDISON INTL and Ribbon Communications

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

The idea behind EDISON INTL and Ribbon 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.