Correlation Between United States and Adobe

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

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

Diversification Opportunities for United States and Adobe

0.61

Correlation Coefficient

United States  Adobe

Poor diversification

The 3 months correlation between United and Adobe is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Adobe Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Inc and United States 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 United States Steel are associated (or correlated) with Adobe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Inc has no effect on the direction of United States i.e., United States and Adobe go up and down completely randomly.

Pair Corralation between United States and Adobe

Assuming the 90 days trading horizon United States Steel is expected to under-perform the Adobe. In addition to that, United States is 1.29 times more volatile than Adobe Inc. It trades about -0.1 of its total potential returns per unit of risk. Adobe Inc is currently generating about -0.04 per unit of volatility. If you would invest  44,275  in Adobe Inc on October 6, 2024 and sell it today you would lose (2,630) from holding Adobe Inc or give up 5.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

United States Steel  vs.  Adobe Inc

United States Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Adobe Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adobe Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Adobe is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with United States and Adobe

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

The idea behind United States Steel and Adobe 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.