Correlation Between Absolute Software and Trade Desk

Can any of the company-specific risk be diversified away by investing in both Absolute Software and Trade Desk 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 Absolute Software and Trade Desk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Absolute Software and Trade Desk, you can compare the effects of market volatilities on Absolute Software and Trade Desk 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 Absolute Software with a short position of Trade Desk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Software and Trade Desk.

Diversification Opportunities for Absolute Software and Trade Desk

0.74

Correlation Coefficient

Absolute Software  Trade Desk

Poor diversification

The 3 months correlation between Absolute and Trade is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Software and Trade Desk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Desk and Absolute Software 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 Absolute Software are associated (or correlated) with Trade Desk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Desk has no effect on the direction of Absolute Software i.e., Absolute Software and Trade Desk go up and down completely randomly.

Pair Corralation between Absolute Software and Trade Desk

If you would invest  9,371  in Trade Desk on August 28, 2024 and sell it today you would earn a total of  3,527  from holding Trade Desk or generate 37.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	0.79%
Values	Daily Returns

Absolute Software  vs.  Trade Desk

Absolute Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Absolute Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Absolute Software is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Trade Desk

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trade Desk are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Trade Desk exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Absolute Software and Trade Desk

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

The idea behind Absolute Software and Trade Desk 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.