Correlation Between Social Life and Franchise

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

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

Diversification Opportunities for Social Life and Franchise

-0.33

Correlation Coefficient

Social Life  Franchise

Very good diversification

The 3 months correlation between Social and Franchise is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Social Life Network and Franchise Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franchise Group and Social Life 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 Social Life Network are associated (or correlated) with Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franchise Group has no effect on the direction of Social Life i.e., Social Life and Franchise go up and down completely randomly.

Pair Corralation between Social Life and Franchise

If you would invest  0.05  in Social Life Network on September 28, 2024 and sell it today you would lose (0.01) from holding Social Life Network or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.61%
Values	Daily Returns

Social Life Network  vs.  Franchise Group

Social Life Network

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Social Life Network are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal essential indicators, Social Life reported solid returns over the last few months and may actually be approaching a breakup point.

Franchise Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Social Life and Franchise

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

The idea behind Social Life Network and Franchise Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.