Correlation Between 22nd Century and Meta Platforms

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Can any of the company-specific risk be diversified away by investing in both 22nd Century 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 22nd Century and Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 22nd Century Group and Meta Platforms, you can compare the effects of market volatilities on 22nd Century 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 22nd Century with a short position of Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of 22nd Century and Meta Platforms.

Diversification Opportunities for 22nd Century and Meta Platforms

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between 22nd and Meta is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding 22nd Century Group and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and 22nd Century 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 22nd Century Group 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 22nd Century i.e., 22nd Century and Meta Platforms go up and down completely randomly.

Pair Corralation between 22nd Century and Meta Platforms

Given the investment horizon of 90 days 22nd Century Group is expected to under-perform the Meta Platforms. In addition to that, 22nd Century is 1.6 times more volatile than Meta Platforms. It trades about -0.13 of its total potential returns per unit of risk. Meta Platforms is currently generating about -0.09 per unit of volatility. If you would invest  22,233  in Meta Platforms on December 29, 2023 and sell it today you would lose (5,284) from holding Meta Platforms or give up 23.77% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy11.13%
ValuesDaily Returns

22nd Century Group  vs.  Meta Platforms

 Performance 
       Timeline  
22nd Century Group 

Risk-Adjusted Performance

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Over the last 90 days 22nd Century Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Meta Platforms 

Risk-Adjusted Performance

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Low
 
High
Very Weak
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 new stock price disturbance, may contribute to short-term losses for the investors.

22nd Century and Meta Platforms Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with 22nd Century and Meta Platforms

The main advantage of trading using opposite 22nd Century and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 22nd Century 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.
The idea behind 22nd Century Group 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 the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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