Correlation Between Investor and Sleep Cycle

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

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

Diversification Opportunities for Investor and Sleep Cycle

0.75

Correlation Coefficient

Investor  Sleep Cycle

Poor diversification

The 3 months correlation between Investor and Sleep is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB ser and Sleep Cycle AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sleep Cycle AB and Investor 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 Investor AB ser are associated (or correlated) with Sleep Cycle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sleep Cycle AB has no effect on the direction of Investor i.e., Investor and Sleep Cycle go up and down completely randomly.

Pair Corralation between Investor and Sleep Cycle

Assuming the 90 days trading horizon Investor AB ser is expected to generate 0.37 times more return on investment than Sleep Cycle. However, Investor AB ser is 2.73 times less risky than Sleep Cycle. It trades about 0.09 of its potential returns per unit of risk. Sleep Cycle AB is currently generating about 0.01 per unit of risk. If you would invest  19,162  in Investor AB ser on September 30, 2024 and sell it today you would earn a total of  10,198  from holding Investor AB ser or generate 53.22% return on investment over 90 days.

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

Investor AB ser  vs.  Sleep Cycle AB

Investor AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investor AB ser has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Investor is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Sleep Cycle AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sleep Cycle AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Investor and Sleep Cycle

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

The idea behind Investor AB ser and Sleep Cycle 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.