Correlation Between ADT and CoreCivic
Can any of the company-specific risk be diversified away by investing in both ADT and CoreCivic 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 ADT and CoreCivic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADT Inc and CoreCivic, you can compare the effects of market volatilities on ADT and CoreCivic 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 ADT with a short position of CoreCivic. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADT and CoreCivic.
Diversification Opportunities for ADT and CoreCivic
Poor diversification
The 3 months correlation between ADT and CoreCivic is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding ADT Inc and CoreCivic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoreCivic and ADT 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 ADT Inc are associated (or correlated) with CoreCivic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoreCivic has no effect on the direction of ADT i.e., ADT and CoreCivic go up and down completely randomly.
Pair Corralation between ADT and CoreCivic
Considering the 90-day investment horizon ADT Inc is expected to under-perform the CoreCivic. But the stock apears to be less risky and, when comparing its historical volatility, ADT Inc is 1.17 times less risky than CoreCivic. The stock trades about 0.0 of its potential returns per unit of risk. The CoreCivic is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,274 in CoreCivic on August 25, 2024 and sell it today you would earn a total of 927.00 from holding CoreCivic or generate 72.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ADT Inc vs. CoreCivic
Performance |
| Timeline |
| ADT Inc |
| CoreCivic |
ADT and CoreCivic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ADT and CoreCivic
The main advantage of trading using opposite ADT and CoreCivic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADT position performs unexpectedly, CoreCivic 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 CoreCivic will offset losses from the drop in CoreCivic's long position.The idea behind ADT Inc and CoreCivic 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.| CoreCivic vs. Park Electrochemical | CoreCivic vs. Innovative Solutions and | CoreCivic vs. Curtiss Wright | CoreCivic vs. National Presto Industries |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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