Correlation Between Grand Canyon and Cogent Communications

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

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

Diversification Opportunities for Grand Canyon and Cogent Communications

0.23

Correlation Coefficient

Grand Canyon  Cogent Communications

Modest diversification

The 3 months correlation between Grand and Cogent is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Grand Canyon Education and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and Grand Canyon 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 Grand Canyon Education are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Grand Canyon i.e., Grand Canyon and Cogent Communications go up and down completely randomly.

Pair Corralation between Grand Canyon and Cogent Communications

Assuming the 90 days trading horizon Grand Canyon Education is expected to generate 0.81 times more return on investment than Cogent Communications. However, Grand Canyon Education is 1.24 times less risky than Cogent Communications. It trades about 0.06 of its potential returns per unit of risk. Cogent Communications Holdings is currently generating about 0.04 per unit of risk. If you would invest  10,140  in Grand Canyon Education on October 12, 2024 and sell it today you would earn a total of  5,560  from holding Grand Canyon Education or generate 54.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Grand Canyon Education  vs.  Cogent Communications Holdings

Grand Canyon Education

Risk-Adjusted Performance

14 of 100

Good

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

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Grand Canyon and Cogent Communications

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

The idea behind Grand Canyon Education and Cogent Communications Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.