Correlation Between Capgemini and Global Develpmts

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

By analyzing existing cross correlation between Capgemini SE ADR and Global Develpmts, you can compare the effects of market volatilities on Capgemini and Global Develpmts 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 Capgemini with a short position of Global Develpmts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capgemini and Global Develpmts.

Diversification Opportunities for Capgemini and Global Develpmts

0.85

Correlation Coefficient

Capgemini  Global Develpmts

Very poor diversification

The 3 months correlation between Capgemini and Global is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Capgemini SE ADR and Global Develpmts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Develpmts and Capgemini 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 Capgemini SE ADR are associated (or correlated) with Global Develpmts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Develpmts has no effect on the direction of Capgemini i.e., Capgemini and Global Develpmts go up and down completely randomly.

Pair Corralation between Capgemini and Global Develpmts

Assuming the 90 days horizon Capgemini SE ADR is expected to under-perform the Global Develpmts. But the pink sheet apears to be less risky and, when comparing its historical volatility, Capgemini SE ADR is 5.17 times less risky than Global Develpmts. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Global Develpmts is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Global Develpmts on September 5, 2024 and sell it today you would lose (0.40) from holding Global Develpmts or give up 22.22% of portfolio value over 90 days.

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

Capgemini SE ADR  vs.  Global Develpmts

Capgemini SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capgemini SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Global Develpmts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Develpmts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Global Develpmts is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capgemini and Global Develpmts

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

The idea behind Capgemini SE ADR and Global Develpmts 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.