Correlation Between Takeda Pharmaceutical and Cogent Communications

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

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

Diversification Opportunities for Takeda Pharmaceutical and Cogent Communications

-0.14

Correlation Coefficient

Takeda Pharmaceutical  Cogent Communications

Good diversification

The 3 months correlation between Takeda and Cogent is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Takeda Pharmaceutical and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and Takeda Pharmaceutical 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 Takeda Pharmaceutical are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Takeda Pharmaceutical i.e., Takeda Pharmaceutical and Cogent Communications go up and down completely randomly.

Pair Corralation between Takeda Pharmaceutical and Cogent Communications

Assuming the 90 days horizon Takeda Pharmaceutical is expected to under-perform the Cogent Communications. But the stock apears to be less risky and, when comparing its historical volatility, Takeda Pharmaceutical is 1.7 times less risky than Cogent Communications. The stock trades about -0.02 of its potential returns per unit of risk. The Cogent Communications Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,249  in Cogent Communications Holdings on October 4, 2024 and sell it today you would earn a total of  1,901  from holding Cogent Communications Holdings or generate 36.22% return on investment over 90 days.

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

Takeda Pharmaceutical  vs.  Cogent Communications Holdings

Takeda Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Takeda Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Takeda Pharmaceutical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cogent Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Cogent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Takeda Pharmaceutical and Cogent Communications

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

The idea behind Takeda Pharmaceutical and Cogent Communications 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.