Correlation Between Rackspace Technology and ESH Acquisition

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

By analyzing existing cross correlation between Rackspace Technology and ESH Acquisition Corp, you can compare the effects of market volatilities on Rackspace Technology and ESH Acquisition 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 Rackspace Technology with a short position of ESH Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rackspace Technology and ESH Acquisition.

Diversification Opportunities for Rackspace Technology and ESH Acquisition

-0.09

Correlation Coefficient

Rackspace Technology  ESH Acquisition

Good diversification

The 3 months correlation between Rackspace and ESH is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Rackspace Technology and ESH Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESH Acquisition Corp and Rackspace Technology 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 Rackspace Technology are associated (or correlated) with ESH Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESH Acquisition Corp has no effect on the direction of Rackspace Technology i.e., Rackspace Technology and ESH Acquisition go up and down completely randomly.

Pair Corralation between Rackspace Technology and ESH Acquisition

Considering the 90-day investment horizon Rackspace Technology is expected to generate 14.36 times less return on investment than ESH Acquisition. But when comparing it to its historical volatility, Rackspace Technology is 4.3 times less risky than ESH Acquisition. It trades about 0.03 of its potential returns per unit of risk. ESH Acquisition Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8.15  in ESH Acquisition Corp on September 15, 2024 and sell it today you would earn a total of  0.85  from holding ESH Acquisition Corp or generate 10.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	56.25%
Values	Daily Returns

Rackspace Technology  vs.  ESH Acquisition Corp

Rackspace Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rackspace Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rackspace Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ESH Acquisition Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESH Acquisition Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, ESH Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rackspace Technology and ESH Acquisition

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

The idea behind Rackspace Technology and ESH Acquisition Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.