Correlation Between SohuCom and Cool

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Can any of the company-specific risk be diversified away by investing in both SohuCom and Cool 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 SohuCom and Cool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SohuCom and Cool Company, you can compare the effects of market volatilities on SohuCom and Cool 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 SohuCom with a short position of Cool. Check out your portfolio center. Please also check ongoing floating volatility patterns of SohuCom and Cool.

Diversification Opportunities for SohuCom and Cool

SohuComCoolDiversified AwaySohuComCoolDiversified Away100%
-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between SohuCom and Cool is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding SohuCom and Cool Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company and SohuCom 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 SohuCom are associated (or correlated) with Cool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company has no effect on the direction of SohuCom i.e., SohuCom and Cool go up and down completely randomly.

Pair Corralation between SohuCom and Cool

Given the investment horizon of 90 days SohuCom is expected to generate 1.44 times more return on investment than Cool. However, SohuCom is 1.44 times more volatile than Cool Company. It trades about 0.19 of its potential returns per unit of risk. Cool Company is currently generating about -0.32 per unit of risk. If you would invest  1,284  in SohuCom on November 25, 2024 and sell it today you would earn a total of  161.00  from holding SohuCom or generate 12.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

SohuCom  vs.  Cool Company

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-20-10010
JavaScript chart by amCharts 3.21.15SOHU CLCO
       Timeline  
SohuCom 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in SohuCom are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical indicators, SohuCom unveiled solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1212.51313.51414.515
Cool Company 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Cool Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb77.588.59

SohuCom and Cool Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.87-5.9-3.92-1.940.02.04.076.148.2110.27 0.020.030.040.050.06
JavaScript chart by amCharts 3.21.15SOHU CLCO
       Returns  

Pair Trading with SohuCom and Cool

The main advantage of trading using opposite SohuCom and Cool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SohuCom position performs unexpectedly, Cool 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 Cool will offset losses from the drop in Cool's long position.
The idea behind SohuCom and Cool Company 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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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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