Correlation Between Cloudflare and Toast

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

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

Diversification Opportunities for Cloudflare and Toast

0.8

Correlation Coefficient

Cloudflare  Toast

Very poor diversification

The 3 months correlation between Cloudflare and Toast is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cloudflare and Toast Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toast Inc and Cloudflare 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 Cloudflare are associated (or correlated) with Toast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toast Inc has no effect on the direction of Cloudflare i.e., Cloudflare and Toast go up and down completely randomly.

Pair Corralation between Cloudflare and Toast

Considering the 90-day investment horizon Cloudflare is expected to generate 1.11 times less return on investment than Toast. But when comparing it to its historical volatility, Cloudflare is 1.04 times less risky than Toast. It trades about 0.2 of its potential returns per unit of risk. Toast Inc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,609  in Toast Inc on September 12, 2024 and sell it today you would earn a total of  1,218  from holding Toast Inc or generate 46.68% return on investment over 90 days.

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

Cloudflare  vs.  Toast Inc

Cloudflare

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Cloudflare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Toast Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Toast Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Toast unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cloudflare and Toast

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

The idea behind Cloudflare and Toast Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..