Correlation Between Cogent Communications and AVIS BUDGET

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

By analyzing existing cross correlation between Cogent Communications Holdings and AVIS BUDGET GROUP, you can compare the effects of market volatilities on Cogent Communications and AVIS BUDGET 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 Cogent Communications with a short position of AVIS BUDGET. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cogent Communications and AVIS BUDGET.

Diversification Opportunities for Cogent Communications and AVIS BUDGET

0.38

Correlation Coefficient

Cogent Communications  AVIS BUDGET

Weak diversification

The 3 months correlation between Cogent and AVIS is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and AVIS BUDGET GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVIS BUDGET GROUP and Cogent Communications 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 Cogent Communications Holdings are associated (or correlated) with AVIS BUDGET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVIS BUDGET GROUP has no effect on the direction of Cogent Communications i.e., Cogent Communications and AVIS BUDGET go up and down completely randomly.

Pair Corralation between Cogent Communications and AVIS BUDGET

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to generate 0.44 times more return on investment than AVIS BUDGET. However, Cogent Communications Holdings is 2.29 times less risky than AVIS BUDGET. It trades about -0.02 of its potential returns per unit of risk. AVIS BUDGET GROUP is currently generating about -0.05 per unit of risk. If you would invest  5,850  in Cogent Communications Holdings on February 4, 2024 and sell it today you would lose (50.00) from holding Cogent Communications Holdings or give up 0.85% of portfolio value over 90 days.

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

Cogent Communications Holdings  vs.  AVIS BUDGET GROUP

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AVIS BUDGET GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AVIS BUDGET GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Cogent Communications and AVIS BUDGET

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

The idea behind Cogent Communications Holdings and AVIS BUDGET GROUP 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.