Correlation Between Orange SA and Cogent Communications

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

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

Diversification Opportunities for Orange SA and Cogent Communications

0.01

Correlation Coefficient

Orange SA  Cogent Communications

Significant diversification

The 3 months correlation between Orange and Cogent is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Orange SA ADR and Cogent Communications Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and Orange SA 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 Orange SA ADR are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Orange SA i.e., Orange SA and Cogent Communications go up and down completely randomly.

Pair Corralation between Orange SA and Cogent Communications

Given the investment horizon of 90 days Orange SA ADR is expected to under-perform the Cogent Communications. But the stock apears to be less risky and, when comparing its historical volatility, Orange SA ADR is 2.17 times less risky than Cogent Communications. The stock trades about -0.66 of its potential returns per unit of risk. The Cogent Communications Group is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  7,657  in Cogent Communications Group on October 10, 2024 and sell it today you would lose (408.00) from holding Cogent Communications Group or give up 5.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

Orange SA ADR  vs.  Cogent Communications Group

Orange SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orange SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Orange SA and Cogent Communications

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

The idea behind Orange SA ADR and Cogent Communications Group 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.