Correlation Between Stem and Rackspace Technology

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

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

Diversification Opportunities for Stem and Rackspace Technology

0.25

Correlation Coefficient

Stem  Rackspace Technology

Modest diversification

The 3 months correlation between Stem and Rackspace is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Stem Inc and Rackspace Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rackspace Technology and Stem 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 Stem Inc are associated (or correlated) with Rackspace Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rackspace Technology has no effect on the direction of Stem i.e., Stem and Rackspace Technology go up and down completely randomly.

Pair Corralation between Stem and Rackspace Technology

Given the investment horizon of 90 days Stem Inc is expected to under-perform the Rackspace Technology. In addition to that, Stem is 2.91 times more volatile than Rackspace Technology. It trades about -0.04 of its total potential returns per unit of risk. Rackspace Technology is currently generating about -0.09 per unit of volatility. If you would invest  222.00  in Rackspace Technology on December 28, 2024 and sell it today you would lose (57.00) from holding Rackspace Technology or give up 25.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Stem Inc  vs.  Rackspace Technology

Stem Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Rackspace Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rackspace Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Stem and Rackspace Technology

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

The idea behind Stem Inc and Rackspace Technology 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..