Correlation Between American States and Ribbon Communications

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

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

Diversification Opportunities for American States and Ribbon Communications

-0.08

Correlation Coefficient

American States  Ribbon Communications

Good diversification

The 3 months correlation between American and Ribbon is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications and American States 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 American States Water 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 American States i.e., American States and Ribbon Communications go up and down completely randomly.

Pair Corralation between American States and Ribbon Communications

Assuming the 90 days horizon American States Water is expected to generate 0.47 times more return on investment than Ribbon Communications. However, American States Water is 2.12 times less risky than Ribbon Communications. It trades about -0.06 of its potential returns per unit of risk. Ribbon Communications is currently generating about -0.04 per unit of risk. If you would invest  7,428  in American States Water on December 21, 2024 and sell it today you would lose (498.00) from holding American States Water or give up 6.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American States Water  vs.  Ribbon Communications

American States Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with American States and Ribbon Communications

The main advantage of trading using opposite American States and Ribbon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American States 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 American States Water 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.