Correlation Between ATT and Spacetalk

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

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

Diversification Opportunities for ATT and Spacetalk

-0.09

Correlation Coefficient

ATT  Spacetalk

Good diversification

The 3 months correlation between ATT and Spacetalk is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Spacetalk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spacetalk and ATT 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 ATT Inc are associated (or correlated) with Spacetalk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spacetalk has no effect on the direction of ATT i.e., ATT and Spacetalk go up and down completely randomly.

Pair Corralation between ATT and Spacetalk

Assuming the 90 days trading horizon ATT is expected to generate 6.82 times less return on investment than Spacetalk. But when comparing it to its historical volatility, ATT Inc is 10.13 times less risky than Spacetalk. It trades about 0.14 of its potential returns per unit of risk. Spacetalk is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Spacetalk on October 26, 2024 and sell it today you would earn a total of  3.85  from holding Spacetalk or generate 77.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

ATT Inc  vs.  Spacetalk

ATT Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, ATT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Spacetalk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spacetalk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Spacetalk reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ATT and Spacetalk

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

The idea behind ATT Inc and Spacetalk 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.