Correlation Between New Wave and Roku

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

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

Diversification Opportunities for New Wave and Roku

-0.2

Correlation Coefficient

New Wave  Roku

Good diversification

The 3 months correlation between New and Roku is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding New Wave Holdings and Roku Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roku Inc and New Wave 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 New Wave Holdings are associated (or correlated) with Roku. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roku Inc has no effect on the direction of New Wave i.e., New Wave and Roku go up and down completely randomly.

Pair Corralation between New Wave and Roku

Assuming the 90 days horizon New Wave Holdings is expected to generate 7.09 times more return on investment than Roku. However, New Wave is 7.09 times more volatile than Roku Inc. It trades about 0.15 of its potential returns per unit of risk. Roku Inc is currently generating about 0.2 per unit of risk. If you would invest  1.21  in New Wave Holdings on September 25, 2024 and sell it today you would earn a total of  0.57  from holding New Wave Holdings or generate 47.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

New Wave Holdings  vs.  Roku Inc

New Wave Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Wave Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, New Wave reported solid returns over the last few months and may actually be approaching a breakup point.

Roku Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roku Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, Roku may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Wave and Roku

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

The idea behind New Wave Holdings and Roku Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.