Correlation Between California Software and Byke Hospitality

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

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

Diversification Opportunities for California Software and Byke Hospitality

-0.25

Correlation Coefficient

California Software  Byke Hospitality

Very good diversification

The 3 months correlation between California and Byke is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding California Software and The Byke Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Byke Hospitality and California 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 California Software are associated (or correlated) with Byke Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Byke Hospitality has no effect on the direction of California Software i.e., California Software and Byke Hospitality go up and down completely randomly.

Pair Corralation between California Software and Byke Hospitality

Assuming the 90 days trading horizon California Software is expected to under-perform the Byke Hospitality. But the stock apears to be less risky and, when comparing its historical volatility, California Software is 1.24 times less risky than Byke Hospitality. The stock trades about -0.18 of its potential returns per unit of risk. The The Byke Hospitality is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  7,041  in The Byke Hospitality on September 17, 2024 and sell it today you would earn a total of  2,715  from holding The Byke Hospitality or generate 38.56% return on investment over 90 days.

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

California Software  vs.  The Byke Hospitality

California Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Byke Hospitality

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Byke Hospitality are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Byke Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Software and Byke Hospitality

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

The idea behind California Software and The Byke Hospitality 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.