Correlation Between Cogent Communications and GMO Internet

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

Diversification Opportunities for Cogent Communications and GMO Internet

0.03

Correlation Coefficient

Cogent Communications  GMO Internet

Significant diversification

The 3 months correlation between Cogent and GMO is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet 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 GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Cogent Communications i.e., Cogent Communications and GMO Internet go up and down completely randomly.

Pair Corralation between Cogent Communications and GMO Internet

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to generate 1.14 times more return on investment than GMO Internet. However, Cogent Communications is 1.14 times more volatile than GMO Internet. It trades about 0.09 of its potential returns per unit of risk. GMO Internet is currently generating about -0.2 per unit of risk. If you would invest  7,200  in Cogent Communications Holdings on October 8, 2024 and sell it today you would earn a total of  150.00  from holding Cogent Communications Holdings or generate 2.08% 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.  GMO Internet

Cogent Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cogent Communications and GMO Internet

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

The idea behind Cogent Communications Holdings and GMO Internet 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.