Correlation Between Roku and American Films

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

By analyzing existing cross correlation between Roku Inc and American Films, you can compare the effects of market volatilities on Roku and American Films 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 Roku with a short position of American Films. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roku and American Films.

Diversification Opportunities for Roku and American Films

0.1

Correlation Coefficient

Roku  American Films

Average diversification

The 3 months correlation between Roku and American is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Roku Inc and American Films in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Films and Roku 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 Roku Inc are associated (or correlated) with American Films. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Films has no effect on the direction of Roku i.e., Roku and American Films go up and down completely randomly.

Pair Corralation between Roku and American Films

Given the investment horizon of 90 days Roku is expected to generate 2.26 times less return on investment than American Films. But when comparing it to its historical volatility, Roku Inc is 6.17 times less risky than American Films. It trades about 0.21 of its potential returns per unit of risk. American Films is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  13.00  in American Films on September 23, 2024 and sell it today you would lose (2.00) from holding American Films or give up 15.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Roku Inc  vs.  American Films

Roku Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roku Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, Roku unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Films

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Films are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, American Films disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Roku and American Films

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

The idea behind Roku Inc and American Films 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.