Correlation Between Cogent Communications and SALESFORCE INC

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

Diversification Opportunities for Cogent Communications and SALESFORCE INC

0.39

Correlation Coefficient

Cogent Communications  SALESFORCE INC

Weak diversification

The 3 months correlation between Cogent and SALESFORCE is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and SALESFORCE INC CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SALESFORCE INC CDR 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 SALESFORCE INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SALESFORCE INC CDR has no effect on the direction of Cogent Communications i.e., Cogent Communications and SALESFORCE INC go up and down completely randomly.

Pair Corralation between Cogent Communications and SALESFORCE INC

Assuming the 90 days trading horizon Cogent Communications is expected to generate 3.25 times less return on investment than SALESFORCE INC. But when comparing it to its historical volatility, Cogent Communications Holdings is 1.74 times less risky than SALESFORCE INC. It trades about 0.05 of its potential returns per unit of risk. SALESFORCE INC CDR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,517  in SALESFORCE INC CDR on October 5, 2024 and sell it today you would earn a total of  223.00  from holding SALESFORCE INC CDR or generate 14.7% return on investment over 90 days.

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

Cogent Communications Holdings  vs.  SALESFORCE INC CDR

Cogent Communications

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Cogent Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SALESFORCE INC CDR

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with Cogent Communications and SALESFORCE INC

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

The idea behind Cogent Communications Holdings and SALESFORCE INC CDR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.