Can any of the company-specific risk be diversified away by investing in both Keurig Dr and Innovid Corp 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 Keurig Dr and Innovid Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Keurig Dr Pepper and Innovid Corp, you can compare the effects of market volatilities on Keurig Dr and Innovid Corp 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 Keurig Dr with a short position of Innovid Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Keurig Dr and Innovid Corp.
Diversification Opportunities for Keurig Dr and Innovid Corp
The 3 months correlation between Keurig and Innovid is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Keurig Dr Pepper and Innovid Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovid Corp and Keurig Dr 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 Keurig Dr Pepper are associated (or correlated) with Innovid Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovid Corp has no effect on the direction of Keurig Dr i.e., Keurig Dr and Innovid Corp go up and down completely randomly.
Pair Corralation between Keurig Dr and Innovid Corp
Considering the 90-day investment horizon Keurig Dr is expected to generate 1.08 times less return on investment than Innovid Corp. But when comparing it to its historical volatility, Keurig Dr Pepper is 5.56 times less risky than Innovid Corp. It trades about 0.16 of its potential returns per unit of risk. Innovid Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 225.00 in Innovid Corp on March 6, 2024 and sell it today you would earn a total of 2.00 from holding Innovid Corp or generate 0.89% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Keurig Dr Pepper are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Keurig Dr reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Innovid Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Innovid Corp may actually be approaching a critical reversion point that can send shares even higher in July 2024.