Correlation Between Gamma Communications and Caledonia Investments
Can any of the company-specific risk be diversified away by investing in both Gamma Communications and Caledonia Investments 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 Gamma Communications and Caledonia Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gamma Communications PLC and Caledonia Investments, you can compare the effects of market volatilities on Gamma Communications and Caledonia Investments 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 Gamma Communications with a short position of Caledonia Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gamma Communications and Caledonia Investments.
Diversification Opportunities for Gamma Communications and Caledonia Investments
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Gamma and Caledonia is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications PLC and Caledonia Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Investments and Gamma Communications 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 Gamma Communications PLC are associated (or correlated) with Caledonia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Investments has no effect on the direction of Gamma Communications i.e., Gamma Communications and Caledonia Investments go up and down completely randomly.
Pair Corralation between Gamma Communications and Caledonia Investments
Assuming the 90 days trading horizon Gamma Communications PLC is expected to generate 1.14 times more return on investment than Caledonia Investments. However, Gamma Communications is 1.14 times more volatile than Caledonia Investments. It trades about 0.04 of its potential returns per unit of risk. Caledonia Investments is currently generating about 0.01 per unit of risk. If you would invest 116,217 in Gamma Communications PLC on October 14, 2024 and sell it today you would earn a total of 26,583 from holding Gamma Communications PLC or generate 22.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gamma Communications PLC vs. Caledonia Investments
Performance |
| Timeline |
| Gamma Communications PLC |
| Caledonia Investments |
Gamma Communications and Caledonia Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gamma Communications and Caledonia Investments
The main advantage of trading using opposite Gamma Communications and Caledonia Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gamma Communications position performs unexpectedly, Caledonia Investments 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 Caledonia Investments will offset losses from the drop in Caledonia Investments' long position.The idea behind Gamma Communications PLC and Caledonia Investments 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.
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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