Correlation Between Waldencast Acquisition and On4 Communications

Can any of the company-specific risk be diversified away by investing in both Waldencast Acquisition and On4 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 Waldencast Acquisition and On4 Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Waldencast Acquisition Corp and On4 Communications, you can compare the effects of market volatilities on Waldencast Acquisition and On4 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 Waldencast Acquisition with a short position of On4 Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waldencast Acquisition and On4 Communications.

Diversification Opportunities for Waldencast Acquisition and On4 Communications

0.14

Correlation Coefficient

Waldencast Acquisition  On4 Communications

Average diversification

The 3 months correlation between Waldencast and On4 is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Waldencast Acquisition Corp and On4 Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on On4 Communications and Waldencast Acquisition 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 Waldencast Acquisition Corp are associated (or correlated) with On4 Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of On4 Communications has no effect on the direction of Waldencast Acquisition i.e., Waldencast Acquisition and On4 Communications go up and down completely randomly.

Pair Corralation between Waldencast Acquisition and On4 Communications

Given the investment horizon of 90 days Waldencast Acquisition Corp is expected to under-perform the On4 Communications. But the stock apears to be less risky and, when comparing its historical volatility, Waldencast Acquisition Corp is 44.52 times less risky than On4 Communications. The stock trades about -0.02 of its potential returns per unit of risk. The On4 Communications is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  0.02  in On4 Communications on September 24, 2024 and sell it today you would lose (0.01) from holding On4 Communications or give up 50.0% of portfolio value over 90 days.

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

Waldencast Acquisition Corp  vs.  On4 Communications

Waldencast Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waldencast Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Waldencast Acquisition is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

On4 Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in On4 Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, On4 Communications demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waldencast Acquisition and On4 Communications

The main advantage of trading using opposite Waldencast Acquisition and On4 Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waldencast Acquisition position performs unexpectedly, On4 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 On4 Communications will offset losses from the drop in On4 Communications' long position.

The idea behind Waldencast Acquisition Corp and On4 Communications 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.