Correlation Between InterDigital and Cogent Communications

Can any of the company-specific risk be diversified away by investing in both InterDigital and Cogent Communications 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 InterDigital and Cogent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between InterDigital and Cogent Communications Group, you can compare the effects of market volatilities on InterDigital and Cogent Communications 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 InterDigital with a short position of Cogent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of InterDigital and Cogent Communications.

Diversification Opportunities for InterDigital and Cogent Communications

0.62

Correlation Coefficient

InterDigital  Cogent Communications

Poor diversification

The 3 months correlation between InterDigital and Cogent is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding InterDigital and Cogent Communications Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and InterDigital 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 InterDigital are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of InterDigital i.e., InterDigital and Cogent Communications go up and down completely randomly.

Pair Corralation between InterDigital and Cogent Communications

Given the investment horizon of 90 days InterDigital is expected to generate 1.25 times more return on investment than Cogent Communications. However, InterDigital is 1.25 times more volatile than Cogent Communications Group. It trades about 0.32 of its potential returns per unit of risk. Cogent Communications Group is currently generating about 0.08 per unit of risk. If you would invest  13,204  in InterDigital on September 12, 2024 and sell it today you would earn a total of  6,167  from holding InterDigital or generate 46.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

InterDigital  vs.  Cogent Communications Group

InterDigital

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterDigital are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, InterDigital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cogent Communications

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Cogent Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with InterDigital and Cogent Communications

The main advantage of trading using opposite InterDigital and Cogent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterDigital position performs unexpectedly, Cogent Communications 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 Cogent Communications will offset losses from the drop in Cogent Communications' long position.

The idea behind InterDigital and Cogent Communications Group 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.