Correlation Between Ribbon Communications and Playa Hotels
Can any of the company-specific risk be diversified away by investing in both Ribbon Communications and Playa Hotels 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 Ribbon Communications and Playa Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ribbon Communications and Playa Hotels Resorts, you can compare the effects of market volatilities on Ribbon Communications and Playa Hotels 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 Ribbon Communications with a short position of Playa Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ribbon Communications and Playa Hotels.
Diversification Opportunities for Ribbon Communications and Playa Hotels
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Ribbon and Playa is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts and Ribbon 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 Ribbon Communications are associated (or correlated) with Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of Ribbon Communications i.e., Ribbon Communications and Playa Hotels go up and down completely randomly.
Pair Corralation between Ribbon Communications and Playa Hotels
Assuming the 90 days trading horizon Ribbon Communications is expected to generate 1.31 times less return on investment than Playa Hotels. But when comparing it to its historical volatility, Ribbon Communications is 1.07 times less risky than Playa Hotels. It trades about 0.21 of its potential returns per unit of risk. Playa Hotels Resorts is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 775.00 in Playa Hotels Resorts on September 1, 2024 and sell it today you would earn a total of 135.00 from holding Playa Hotels Resorts or generate 17.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ribbon Communications vs. Playa Hotels Resorts
Performance |
| Timeline |
| Ribbon Communications |
| Playa Hotels Resorts |
Ribbon Communications and Playa Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ribbon Communications and Playa Hotels
The main advantage of trading using opposite Ribbon Communications and Playa Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ribbon Communications position performs unexpectedly, Playa Hotels 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 Playa Hotels will offset losses from the drop in Playa Hotels' long position.The idea behind Ribbon Communications and Playa Hotels Resorts 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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