Correlation Between X FAB and Cogent Communications

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

By analyzing existing cross correlation between X FAB Silicon Foundries and Cogent Communications Holdings, you can compare the effects of market volatilities on X FAB and Cogent Communications 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 X FAB with a short position of Cogent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and Cogent Communications.

Diversification Opportunities for X FAB and Cogent Communications

0.67

Correlation Coefficient

X FAB  Cogent Communications

Poor diversification

The 3 months correlation between XFB and Cogent is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and X FAB 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 X FAB Silicon Foundries are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of X FAB i.e., X FAB and Cogent Communications go up and down completely randomly.

Pair Corralation between X FAB and Cogent Communications

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the Cogent Communications. In addition to that, X FAB is 1.21 times more volatile than Cogent Communications Holdings. It trades about -0.13 of its total potential returns per unit of risk. Cogent Communications Holdings is currently generating about -0.13 per unit of volatility. If you would invest  7,047  in Cogent Communications Holdings on December 28, 2024 and sell it today you would lose (1,247) from holding Cogent Communications Holdings or give up 17.7% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  Cogent Communications Holdings

X FAB Silicon

Risk-Adjusted Performance

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Cogent Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with X FAB and Cogent Communications

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

The idea behind X FAB Silicon Foundries and Cogent Communications Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.