Correlation Between Adobe and Square
Can any of the company-specific risk be diversified away by investing in both Adobe and Square 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 Adobe and Square into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adobe Inc and Square Inc, you can compare the effects of market volatilities on Adobe and Square 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 Adobe with a short position of Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adobe and Square.
Diversification Opportunities for Adobe and Square
Good diversification
The 3 months correlation between Adobe and Square is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Adobe Inc and Square Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Inc and Adobe 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 Adobe Inc are associated (or correlated) with Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Inc has no effect on the direction of Adobe i.e., Adobe and Square go up and down completely randomly.
Pair Corralation between Adobe and Square
Assuming the 90 days horizon Adobe is expected to generate 2.58 times less return on investment than Square. But when comparing it to its historical volatility, Adobe Inc is 1.67 times less risky than Square. It trades about 0.16 of its potential returns per unit of risk. Square Inc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 6,789 in Square Inc on August 30, 2024 and sell it today you would earn a total of 1,606 from holding Square Inc or generate 23.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Adobe Inc vs. Square Inc
Performance |
| Timeline |
| Adobe Inc |
| Square Inc |
Adobe and Square Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Adobe and Square
The main advantage of trading using opposite Adobe and Square positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adobe position performs unexpectedly, Square 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 Square will offset losses from the drop in Square's long position.| Adobe vs. EHEALTH | Adobe vs. IMPERIAL TOBACCO | Adobe vs. China Communications Services | Adobe vs. Diamondrock Hospitality Co |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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