Correlation Between Cogent Communications and Orient Overseas

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

Diversification Opportunities for Cogent Communications and Orient Overseas

0.03

Correlation Coefficient

Cogent Communications  Orient Overseas

Significant diversification

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

Pair Corralation between Cogent Communications and Orient Overseas

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to under-perform the Orient Overseas. In addition to that, Cogent Communications is 1.02 times more volatile than Orient Overseas Limited. It trades about -0.07 of its total potential returns per unit of risk. Orient Overseas Limited is currently generating about 0.02 per unit of volatility. If you would invest  1,314  in Orient Overseas Limited on December 21, 2024 and sell it today you would earn a total of  19.00  from holding Orient Overseas Limited or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Cogent Communications Holdings  vs.  Orient Overseas Limited

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 unsteady 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.

Orient Overseas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Overseas Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Orient Overseas is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cogent Communications and Orient Overseas

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

The idea behind Cogent Communications Holdings and Orient Overseas Limited 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.