Correlation Between GoPro and IRobot
Can any of the company-specific risk be diversified away by investing in both GoPro and IRobot 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 GoPro and IRobot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GoPro Inc and iRobot, you can compare the effects of market volatilities on GoPro and IRobot 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 GoPro with a short position of IRobot. Check out your portfolio center. Please also check ongoing floating volatility patterns of GoPro and IRobot.
Diversification Opportunities for GoPro and IRobot
Very poor diversification
The 3 months correlation between GoPro and IRobot is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding GoPro Inc and iRobot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iRobot and GoPro 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 GoPro Inc are associated (or correlated) with IRobot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iRobot has no effect on the direction of GoPro i.e., GoPro and IRobot go up and down completely randomly.
Pair Corralation between GoPro and IRobot
Given the investment horizon of 90 days GoPro Inc is expected to under-perform the IRobot. But the stock apears to be less risky and, when comparing its historical volatility, GoPro Inc is 2.0 times less risky than IRobot. The stock trades about -0.32 of its potential returns per unit of risk. The iRobot is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest 921.00 in iRobot on January 17, 2024 and sell it today you would lose (163.00) from holding iRobot or give up 17.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
GoPro Inc vs. iRobot
Performance |
| Timeline |
| GoPro Inc |
| iRobot |
GoPro and IRobot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GoPro and IRobot
The main advantage of trading using opposite GoPro and IRobot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GoPro position performs unexpectedly, IRobot 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 IRobot will offset losses from the drop in IRobot's long position.The idea behind GoPro Inc and iRobot 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.| IRobot vs. Meta Materials | IRobot vs. Sphere 3D Corp | IRobot vs. Katapult Holdings | IRobot vs. Aquagold International |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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