Correlation Between Gapwaves and Midsummer

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

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

Diversification Opportunities for Gapwaves and Midsummer

-0.88

Correlation Coefficient

Gapwaves  Midsummer

Pay attention - limited upside

The 3 months correlation between Gapwaves and Midsummer is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Gapwaves AB Series and Midsummer AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midsummer AB and Gapwaves 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 Gapwaves AB Series are associated (or correlated) with Midsummer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midsummer AB has no effect on the direction of Gapwaves i.e., Gapwaves and Midsummer go up and down completely randomly.

Pair Corralation between Gapwaves and Midsummer

Assuming the 90 days trading horizon Gapwaves AB Series is expected to under-perform the Midsummer. But the stock apears to be less risky and, when comparing its historical volatility, Gapwaves AB Series is 1.27 times less risky than Midsummer. The stock trades about -0.03 of its potential returns per unit of risk. The Midsummer AB is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  101.00  in Midsummer AB on September 26, 2024 and sell it today you would earn a total of  50.00  from holding Midsummer AB or generate 49.5% return on investment over 90 days.

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

Gapwaves AB Series  vs.  Midsummer AB

Gapwaves AB Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gapwaves AB Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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.

Midsummer AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Midsummer AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Midsummer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gapwaves and Midsummer

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

The idea behind Gapwaves AB Series and Midsummer AB 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.