Correlation Between GoPro and Wearable Devices

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

By analyzing existing cross correlation between GoPro Inc and Wearable Devices, you can compare the effects of market volatilities on GoPro and Wearable Devices 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 Wearable Devices. Check out your portfolio center. Please also check ongoing floating volatility patterns of GoPro and Wearable Devices.

Diversification Opportunities for GoPro and Wearable Devices

0.22

Correlation Coefficient

GoPro  Wearable Devices

Modest diversification

The 3 months correlation between GoPro and Wearable is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding GoPro Inc and Wearable Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wearable Devices 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 Wearable Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wearable Devices has no effect on the direction of GoPro i.e., GoPro and Wearable Devices go up and down completely randomly.

Pair Corralation between GoPro and Wearable Devices

Given the investment horizon of 90 days GoPro Inc is expected to under-perform the Wearable Devices. But the stock apears to be less risky and, when comparing its historical volatility, GoPro Inc is 5.4 times less risky than Wearable Devices. The stock trades about -0.11 of its potential returns per unit of risk. The Wearable Devices is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Wearable Devices on January 29, 2024 and sell it today you would lose (11.10) from holding Wearable Devices or give up 65.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	82.26%
Values	Daily Returns

GoPro Inc  vs.  Wearable Devices

GoPro Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GoPro Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Wearable Devices

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wearable Devices are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Wearable Devices showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GoPro and Wearable Devices

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

The idea behind GoPro Inc and Wearable Devices 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..