Correlation Between Sparta Capital and Edgewater Wireless

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

By analyzing existing cross correlation between Sparta Capital and Edgewater Wireless Systems, you can compare the effects of market volatilities on Sparta Capital and Edgewater Wireless 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 Sparta Capital with a short position of Edgewater Wireless. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparta Capital and Edgewater Wireless.

Diversification Opportunities for Sparta Capital and Edgewater Wireless

0.18

Correlation Coefficient

Sparta Capital  Edgewater Wireless

Average diversification

The 3 months correlation between Sparta and Edgewater is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sparta Capital and Edgewater Wireless Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edgewater Wireless and Sparta Capital 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 Sparta Capital are associated (or correlated) with Edgewater Wireless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edgewater Wireless has no effect on the direction of Sparta Capital i.e., Sparta Capital and Edgewater Wireless go up and down completely randomly.

Pair Corralation between Sparta Capital and Edgewater Wireless

Assuming the 90 days horizon Sparta Capital is expected to generate 1.75 times less return on investment than Edgewater Wireless. But when comparing it to its historical volatility, Sparta Capital is 1.21 times less risky than Edgewater Wireless. It trades about 0.03 of its potential returns per unit of risk. Edgewater Wireless Systems is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2.82  in Edgewater Wireless Systems on September 5, 2024 and sell it today you would earn a total of  0.08  from holding Edgewater Wireless Systems or generate 2.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Sparta Capital  vs.  Edgewater Wireless Systems

Sparta Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sparta Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sparta Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Edgewater Wireless

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Edgewater Wireless Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Edgewater Wireless reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparta Capital and Edgewater Wireless

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

The idea behind Sparta Capital and Edgewater Wireless Systems 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.