Correlation Between American Software and Powerschool Holdings

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

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

Diversification Opportunities for American Software and Powerschool Holdings

0.86

Correlation Coefficient

American Software  Powerschool Holdings

Very poor diversification

The 3 months correlation between American and Powerschool is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Software and Powerschool Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powerschool Holdings and American Software 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 American Software are associated (or correlated) with Powerschool Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powerschool Holdings has no effect on the direction of American Software i.e., American Software and Powerschool Holdings go up and down completely randomly.

Pair Corralation between American Software and Powerschool Holdings

Assuming the 90 days horizon American Software is expected to under-perform the Powerschool Holdings. In addition to that, American Software is 15.25 times more volatile than Powerschool Holdings. It trades about -0.15 of its total potential returns per unit of risk. Powerschool Holdings is currently generating about 0.36 per unit of volatility. If you would invest  2,268  in Powerschool Holdings on August 31, 2024 and sell it today you would earn a total of  13.00  from holding Powerschool Holdings or generate 0.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

American Software  vs.  Powerschool Holdings

American Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Powerschool Holdings

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Powerschool Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Powerschool Holdings is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Software and Powerschool Holdings

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

The idea behind American Software and Powerschool Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.