Correlation Between GMO Internet and Cogent Communications

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

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

Diversification Opportunities for GMO Internet and Cogent Communications

0.03

Correlation Coefficient

GMO Internet  Cogent Communications

Significant diversification

The 3 months correlation between GMO and Cogent is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and Cogent Communications go up and down completely randomly.

Pair Corralation between GMO Internet and Cogent Communications

Assuming the 90 days horizon GMO Internet is expected to under-perform the Cogent Communications. But the stock apears to be less risky and, when comparing its historical volatility, GMO Internet is 1.14 times less risky than Cogent Communications. The stock trades about -0.2 of its potential returns per unit of risk. The Cogent Communications Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,200  in Cogent Communications Holdings on October 8, 2024 and sell it today you would earn a total of  150.00  from holding Cogent Communications Holdings or generate 2.08% return on investment over 90 days.

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

GMO Internet  vs.  Cogent Communications Holdings

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cogent Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 GMO Internet and Cogent Communications

The main advantage of trading using opposite GMO Internet and Cogent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.