Correlation Between Midsummer and Gapwaves

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

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

Diversification Opportunities for Midsummer and Gapwaves

-0.88

Correlation Coefficient

Midsummer  Gapwaves

Pay attention - limited upside

The 3 months correlation between Midsummer and Gapwaves is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Midsummer AB and Gapwaves AB Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gapwaves AB Series and Midsummer 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 Midsummer AB are associated (or correlated) with Gapwaves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gapwaves AB Series has no effect on the direction of Midsummer i.e., Midsummer and Gapwaves go up and down completely randomly.

Pair Corralation between Midsummer and Gapwaves

Assuming the 90 days trading horizon Midsummer AB is expected to under-perform the Gapwaves. In addition to that, Midsummer is 2.36 times more volatile than Gapwaves AB Series. It trades about -0.02 of its total potential returns per unit of risk. Gapwaves AB Series is currently generating about -0.03 per unit of volatility. If you would invest  2,895  in Gapwaves AB Series on September 26, 2024 and sell it today you would lose (1,367) from holding Gapwaves AB Series or give up 47.22% of portfolio value over 90 days.

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

Midsummer AB  vs.  Gapwaves AB Series

Midsummer AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Midsummer AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Midsummer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gapwaves AB Series

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Midsummer and Gapwaves

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

The idea behind Midsummer AB and Gapwaves AB Series 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.