Correlation Between Waves and Meta Platforms

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Can any of the company-specific risk be diversified away by investing in both Waves and Meta Platforms 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 Waves and Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Waves and Meta Platforms, you can compare the effects of market volatilities on Waves and Meta Platforms 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 Waves with a short position of Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waves and Meta Platforms.

Diversification Opportunities for Waves and Meta Platforms

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Waves and Meta Platforms is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Waves and Meta Platforms in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and Waves 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 Waves are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Waves i.e., Waves and Meta Platforms go up and down completely randomly.

Pair Corralation between Waves and Meta Platforms

Assuming the 90 days trading horizon Waves is expected to under-perform the Meta Platforms. In addition to that, Waves is 3.82 times more volatile than Meta Platforms. It trades about -0.05 of its total potential returns per unit of risk. Meta Platforms is currently generating about 0.0 per unit of volatility. If you would invest  22,509  in Meta Platforms on February 18, 2022 and sell it today you would lose (3,155)  from holding Meta Platforms or give up 14.02% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy30.06%
ValuesDaily Returns

Waves  vs.  Meta Platforms

 Performance (%) 
      Timeline 
Waves 
Waves Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Waves are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Waves sustained solid returns over the last few months and may actually be approaching a breakup point.

Waves Price Channel

Meta Platforms 
Meta Platforms Performance
0 of 100
Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Meta Platforms is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Meta Platforms Price Channel

Waves and Meta Platforms Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Waves and Meta Platforms

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

Waves

Pair trading matchups for Waves

Salesforce vs. Waves
GM vs. Waves
Vmware vs. Waves
Olin Corp vs. Waves
Sentinelone Inc vs. Waves
Visa vs. Waves
Citigroup vs. Waves
Microsoft Corp vs. Waves
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Waves as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Waves' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Waves' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Waves.
The idea behind Waves and Meta Platforms 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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