Correlation Between Roku and Light SA

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

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

Diversification Opportunities for Roku and Light SA

-0.36

Correlation Coefficient

Roku  Light SA

Very good diversification

The 3 months correlation between Roku and Light is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Roku Inc and Light SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light SA and Roku 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 Roku Inc are associated (or correlated) with Light SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light SA has no effect on the direction of Roku i.e., Roku and Light SA go up and down completely randomly.

Pair Corralation between Roku and Light SA

Assuming the 90 days trading horizon Roku Inc is expected to generate 1.71 times more return on investment than Light SA. However, Roku is 1.71 times more volatile than Light SA. It trades about 0.17 of its potential returns per unit of risk. Light SA is currently generating about -0.03 per unit of risk. If you would invest  2,204  in Roku Inc on September 15, 2024 and sell it today you would earn a total of  294.00  from holding Roku Inc or generate 13.34% return on investment over 90 days.

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

Roku Inc  vs.  Light SA

Roku Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Roku Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward-looking signals, Roku sustained solid returns over the last few months and may actually be approaching a breakup point.

Light SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Light SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic 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 Roku and Light SA

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

The idea behind Roku Inc and Light SA 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.