Correlation Between Equinix and Dentsu

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

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

Diversification Opportunities for Equinix and Dentsu

0.21

Correlation Coefficient

Equinix  Dentsu

Modest diversification

The 3 months correlation between Equinix and Dentsu is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Equinix and Dentsu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dentsu Inc ADR and Equinix 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 Equinix are associated (or correlated) with Dentsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dentsu Inc ADR has no effect on the direction of Equinix i.e., Equinix and Dentsu go up and down completely randomly.

Pair Corralation between Equinix and Dentsu

Given the investment horizon of 90 days Equinix is expected to under-perform the Dentsu. But the stock apears to be less risky and, when comparing its historical volatility, Equinix is 1.22 times less risky than Dentsu. The stock trades about -0.11 of its potential returns per unit of risk. The Dentsu Inc ADR is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,466  in Dentsu Inc ADR on December 26, 2024 and sell it today you would lose (202.00) from holding Dentsu Inc ADR or give up 8.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Equinix  vs.  Dentsu Inc ADR

Equinix

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equinix has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dentsu Inc ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dentsu Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Equinix and Dentsu

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

The idea behind Equinix and Dentsu Inc ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.