Correlation Between Godaddy and StoneCo

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

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

Diversification Opportunities for Godaddy and StoneCo

-0.51

Correlation Coefficient

Godaddy  StoneCo

Excellent diversification

The 3 months correlation between Godaddy and StoneCo is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Godaddy and StoneCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on StoneCo and Godaddy 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 Godaddy are associated (or correlated) with StoneCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of StoneCo has no effect on the direction of Godaddy i.e., Godaddy and StoneCo go up and down completely randomly.

Pair Corralation between Godaddy and StoneCo

Given the investment horizon of 90 days Godaddy is expected to under-perform the StoneCo. But the stock apears to be less risky and, when comparing its historical volatility, Godaddy is 1.41 times less risky than StoneCo. The stock trades about -0.06 of its potential returns per unit of risk. The StoneCo is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  788.00  in StoneCo on December 29, 2024 and sell it today you would earn a total of  311.00  from holding StoneCo or generate 39.47% return on investment over 90 days.

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

Godaddy  vs.  StoneCo

Godaddy

Risk-Adjusted Performance

Very Weak

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

StoneCo

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in StoneCo are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, StoneCo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Godaddy and StoneCo

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

The idea behind Godaddy and StoneCo 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.