Correlation Between Social Detention and American Diversified

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

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

Diversification Opportunities for Social Detention and American Diversified

0.57

Correlation Coefficient

Social Detention  American Diversified

Very weak diversification

The 3 months correlation between Social and American is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Social Detention and American Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Diversified and Social Detention 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 Social Detention are associated (or correlated) with American Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Diversified has no effect on the direction of Social Detention i.e., Social Detention and American Diversified go up and down completely randomly.

Pair Corralation between Social Detention and American Diversified

Given the investment horizon of 90 days Social Detention is expected to generate 10.62 times less return on investment than American Diversified. But when comparing it to its historical volatility, Social Detention is 1.28 times less risky than American Diversified. It trades about 0.01 of its potential returns per unit of risk. American Diversified Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.21  in American Diversified Holdings on August 31, 2024 and sell it today you would lose (0.02) from holding American Diversified Holdings or give up 9.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.59%
Values	Daily Returns

Social Detention  vs.  American Diversified Holdings

Social Detention

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Social Detention are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Social Detention exhibited solid returns over the last few months and may actually be approaching a breakup point.

American Diversified

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Diversified Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, American Diversified exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Social Detention and American Diversified

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

The idea behind Social Detention and American Diversified Holdings 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.