Correlation Between Iron Road and Global Data

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

By analyzing existing cross correlation between Iron Road and Global Data Centre, you can compare the effects of market volatilities on Iron Road and Global Data 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 Iron Road with a short position of Global Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Global Data.

Diversification Opportunities for Iron Road and Global Data

0.78

Correlation Coefficient

Iron Road  Global Data

Poor diversification

The 3 months correlation between Iron and Global is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Global Data Centre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Data Centre and Iron Road 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 Iron Road are associated (or correlated) with Global Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Data Centre has no effect on the direction of Iron Road i.e., Iron Road and Global Data go up and down completely randomly.

Pair Corralation between Iron Road and Global Data

Assuming the 90 days trading horizon Iron Road is expected to generate 0.69 times more return on investment than Global Data. However, Iron Road is 1.44 times less risky than Global Data. It trades about -0.04 of its potential returns per unit of risk. Global Data Centre is currently generating about -0.11 per unit of risk. If you would invest  6.70  in Iron Road on September 26, 2024 and sell it today you would lose (0.80) from holding Iron Road or give up 11.94% of portfolio value over 90 days.

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

Iron Road  vs.  Global Data Centre

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Global Data Centre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Data Centre has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Iron Road and Global Data

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

The idea behind Iron Road and Global Data Centre 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.