Correlation Between Canada Rare and Cogeco Communications

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

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

Diversification Opportunities for Canada Rare and Cogeco Communications

0.37

Correlation Coefficient

Canada Rare  Cogeco Communications

Weak diversification

The 3 months correlation between Canada and Cogeco is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Canada Rare Earth and Cogeco Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogeco Communications and Canada Rare 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 Canada Rare Earth are associated (or correlated) with Cogeco Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogeco Communications has no effect on the direction of Canada Rare i.e., Canada Rare and Cogeco Communications go up and down completely randomly.

Pair Corralation between Canada Rare and Cogeco Communications

Given the investment horizon of 90 days Canada Rare Earth is expected to generate 13.14 times more return on investment than Cogeco Communications. However, Canada Rare is 13.14 times more volatile than Cogeco Communications. It trades about 0.1 of its potential returns per unit of risk. Cogeco Communications is currently generating about -0.03 per unit of risk. If you would invest  2.00  in Canada Rare Earth on September 27, 2024 and sell it today you would earn a total of  0.00  from holding Canada Rare Earth or generate 0.0% return on investment over 90 days.

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

Canada Rare Earth  vs.  Cogeco Communications

Canada Rare Earth

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canada Rare Earth are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Canada Rare showed solid returns over the last few months and may actually be approaching a breakup point.

Cogeco Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogeco Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Cogeco Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canada Rare and Cogeco Communications

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

The idea behind Canada Rare Earth and Cogeco Communications 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.