Correlation Between Ribbon Communications and Hexcel

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

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

Diversification Opportunities for Ribbon Communications and Hexcel

0.42

Correlation Coefficient

Ribbon Communications  Hexcel

Very weak diversification

The 3 months correlation between Ribbon and Hexcel is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and Hexcel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexcel and Ribbon Communications 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 Ribbon Communications are associated (or correlated) with Hexcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexcel has no effect on the direction of Ribbon Communications i.e., Ribbon Communications and Hexcel go up and down completely randomly.

Pair Corralation between Ribbon Communications and Hexcel

Assuming the 90 days trading horizon Ribbon Communications is expected to generate 2.06 times more return on investment than Hexcel. However, Ribbon Communications is 2.06 times more volatile than Hexcel. It trades about 0.04 of its potential returns per unit of risk. Hexcel is currently generating about 0.01 per unit of risk. If you would invest  278.00  in Ribbon Communications on October 5, 2024 and sell it today you would earn a total of  106.00  from holding Ribbon Communications or generate 38.13% return on investment over 90 days.

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

Ribbon Communications  vs.  Hexcel

Ribbon Communications

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Ribbon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Hexcel

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Hexcel may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Ribbon Communications and Hexcel

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

The idea behind Ribbon Communications and Hexcel 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.