Correlation Between VeriSign and Couchbase

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

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

Diversification Opportunities for VeriSign and Couchbase

-0.3

Correlation Coefficient

VeriSign  Couchbase

Very good diversification

The 3 months correlation between VeriSign and Couchbase is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding VeriSign and Couchbase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Couchbase and VeriSign 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 VeriSign are associated (or correlated) with Couchbase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Couchbase has no effect on the direction of VeriSign i.e., VeriSign and Couchbase go up and down completely randomly.

Pair Corralation between VeriSign and Couchbase

Given the investment horizon of 90 days VeriSign is expected to generate 0.39 times more return on investment than Couchbase. However, VeriSign is 2.54 times less risky than Couchbase. It trades about 0.31 of its potential returns per unit of risk. Couchbase is currently generating about -0.02 per unit of risk. If you would invest  17,825  in VeriSign on November 19, 2024 and sell it today you would earn a total of  5,099  from holding VeriSign or generate 28.61% return on investment over 90 days.

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

VeriSign  vs.  Couchbase

VeriSign

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VeriSign are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, VeriSign displayed solid returns over the last few months and may actually be approaching a breakup point.

Couchbase

Risk-Adjusted Performance

Very Weak

Over the last 90 days Couchbase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Couchbase is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VeriSign and Couchbase

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

The idea behind VeriSign and Couchbase 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .