Correlation Between Twilio and Meta Platforms

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

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

Diversification Opportunities for Twilio and Meta Platforms

0.43

Correlation Coefficient

Twilio  Meta Platforms

Very weak diversification

The 3 months correlation between Twilio and Meta is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Twilio Inc and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and Twilio 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 Twilio Inc are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Twilio i.e., Twilio and Meta Platforms go up and down completely randomly.

Pair Corralation between Twilio and Meta Platforms

Given the investment horizon of 90 days Twilio Inc is expected to generate 1.64 times more return on investment than Meta Platforms. However, Twilio is 1.64 times more volatile than Meta Platforms. It trades about 0.33 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.1 per unit of risk. If you would invest  6,276  in Twilio Inc on August 30, 2024 and sell it today you would earn a total of  4,015  from holding Twilio Inc or generate 63.97% return on investment over 90 days.

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

Twilio Inc  vs.  Meta Platforms

Twilio Inc

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Twilio Inc are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Twilio displayed solid returns over the last few months and may actually be approaching a breakup point.

Meta Platforms

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Twilio and Meta Platforms

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

The idea behind Twilio Inc and Meta Platforms 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.