Correlation Between SoundHound and Butterfly Network

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

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

Diversification Opportunities for SoundHound and Butterfly Network

0.81

Correlation Coefficient

SoundHound  Butterfly Network

Very poor diversification

The 3 months correlation between SoundHound and Butterfly is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SoundHound AI and Butterfly Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Butterfly Network and SoundHound 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 SoundHound AI are associated (or correlated) with Butterfly Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Butterfly Network has no effect on the direction of SoundHound i.e., SoundHound and Butterfly Network go up and down completely randomly.

Pair Corralation between SoundHound and Butterfly Network

Given the investment horizon of 90 days SoundHound AI is expected to generate 1.64 times more return on investment than Butterfly Network. However, SoundHound is 1.64 times more volatile than Butterfly Network. It trades about 0.33 of its potential returns per unit of risk. Butterfly Network is currently generating about 0.3 per unit of risk. If you would invest  525.00  in SoundHound AI on September 16, 2024 and sell it today you would earn a total of  1,166  from holding SoundHound AI or generate 222.1% return on investment over 90 days.

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

SoundHound AI  vs.  Butterfly Network

SoundHound AI

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SoundHound AI are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, SoundHound displayed solid returns over the last few months and may actually be approaching a breakup point.

Butterfly Network

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Butterfly Network are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Butterfly Network showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SoundHound and Butterfly Network

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

The idea behind SoundHound AI and Butterfly Network 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.