Correlation Between Cloudflare and Adobe Systems

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

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

Diversification Opportunities for Cloudflare and Adobe Systems

-0.58

Correlation Coefficient

Cloudflare  Adobe Systems

Excellent diversification

The 3 months correlation between Cloudflare and Adobe is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cloudflare and Adobe Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Cloudflare 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 Cloudflare are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Cloudflare i.e., Cloudflare and Adobe Systems go up and down completely randomly.

Pair Corralation between Cloudflare and Adobe Systems

Considering the 90-day investment horizon Cloudflare is expected to generate 1.41 times more return on investment than Adobe Systems. However, Cloudflare is 1.41 times more volatile than Adobe Systems Incorporated. It trades about 0.15 of its potential returns per unit of risk. Adobe Systems Incorporated is currently generating about -0.06 per unit of risk. If you would invest  8,164  in Cloudflare on August 25, 2024 and sell it today you would earn a total of  2,259  from holding Cloudflare or generate 27.67% return on investment over 90 days.

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

Cloudflare  vs.  Adobe Systems Incorporated

Cloudflare

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Cloudflare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Adobe Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adobe Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cloudflare and Adobe Systems

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

The idea behind Cloudflare and Adobe Systems Incorporated 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.