Correlation Between Cogent Communications and ABB

Can any of the company-specific risk be diversified away by investing in both Cogent Communications and ABB 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 ABB 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 ABB, you can compare the effects of market volatilities on Cogent Communications and ABB 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 ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cogent Communications and ABB.

Diversification Opportunities for Cogent Communications and ABB

0.51

Correlation Coefficient

Cogent Communications  ABB

Very weak diversification

The 3 months correlation between Cogent and ABB is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Cogent Communications i.e., Cogent Communications and ABB go up and down completely randomly.

Pair Corralation between Cogent Communications and ABB

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to generate 0.86 times more return on investment than ABB. However, Cogent Communications Holdings is 1.16 times less risky than ABB. It trades about 0.14 of its potential returns per unit of risk. ABB is currently generating about 0.09 per unit of risk. If you would invest  6,172  in Cogent Communications Holdings on September 14, 2024 and sell it today you would earn a total of  1,078  from holding Cogent Communications Holdings or generate 17.47% return on investment over 90 days.

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

Cogent Communications Holdings  vs.  ABB

Cogent Communications

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Cogent Communications reported solid returns over the last few months and may actually be approaching a breakup point.

ABB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cogent Communications and ABB

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

The idea behind Cogent Communications Holdings and ABB 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.