Correlation Between System and CU Tech

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

By analyzing existing cross correlation between System and Application and CU Tech Corp, you can compare the effects of market volatilities on System and CU Tech 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 System with a short position of CU Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of System and CU Tech.

Diversification Opportunities for System and CU Tech

0.1

Correlation Coefficient

System  CU Tech

Average diversification

The 3 months correlation between System and 376290 is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding System and Application and CU Tech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CU Tech Corp and System 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 System and Application are associated (or correlated) with CU Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CU Tech Corp has no effect on the direction of System i.e., System and CU Tech go up and down completely randomly.

Pair Corralation between System and CU Tech

Assuming the 90 days trading horizon System and Application is expected to generate 1.58 times more return on investment than CU Tech. However, System is 1.58 times more volatile than CU Tech Corp. It trades about -0.01 of its potential returns per unit of risk. CU Tech Corp is currently generating about -0.04 per unit of risk. If you would invest  216,500  in System and Application on September 29, 2024 and sell it today you would lose (67,600) from holding System and Application or give up 31.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

System and Application  vs.  CU Tech Corp

System and Application

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in System and Application are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, System is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CU Tech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CU Tech Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CU Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with System and CU Tech

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

The idea behind System and Application and CU Tech Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.