Correlation Between Cogent Communications and Rai Way

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

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

Diversification Opportunities for Cogent Communications and Rai Way

0.08

Correlation Coefficient

Cogent Communications  Rai Way

Significant diversification

The 3 months correlation between Cogent and Rai is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and Rai Way SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rai Way SpA and Cogent 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 Cogent Communications Holdings are associated (or correlated) with Rai Way. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rai Way SpA has no effect on the direction of Cogent Communications i.e., Cogent Communications and Rai Way go up and down completely randomly.

Pair Corralation between Cogent Communications and Rai Way

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to under-perform the Rai Way. In addition to that, Cogent Communications is 1.23 times more volatile than Rai Way SpA. It trades about -0.06 of its total potential returns per unit of risk. Rai Way SpA is currently generating about 0.1 per unit of volatility. If you would invest  503.00  in Rai Way SpA on December 4, 2024 and sell it today you would earn a total of  51.00  from holding Rai Way SpA or generate 10.14% return on investment over 90 days.

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

Cogent Communications Holdings  vs.  Rai Way SpA

Cogent Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Rai Way SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rai Way SpA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rai Way may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cogent Communications and Rai Way

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

The idea behind Cogent Communications Holdings and Rai Way SpA 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.