Correlation Between Salesforce and African Rainbow

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

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

Diversification Opportunities for Salesforce and African Rainbow

0.82

Correlation Coefficient

Salesforce  African Rainbow

Very poor diversification

The 3 months correlation between Salesforce and African is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and African Rainbow Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Capital and Salesforce 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 Salesforce are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Capital has no effect on the direction of Salesforce i.e., Salesforce and African Rainbow go up and down completely randomly.

Pair Corralation between Salesforce and African Rainbow

Considering the 90-day investment horizon Salesforce is expected to generate 0.97 times more return on investment than African Rainbow. However, Salesforce is 1.04 times less risky than African Rainbow. It trades about 0.27 of its potential returns per unit of risk. African Rainbow Capital is currently generating about 0.14 per unit of risk. If you would invest  24,767  in Salesforce on September 1, 2024 and sell it today you would earn a total of  8,232  from holding Salesforce or generate 33.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Salesforce  vs.  African Rainbow Capital

Salesforce

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

African Rainbow Capital

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in African Rainbow Capital are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Rainbow exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and African Rainbow

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

The idea behind Salesforce and African Rainbow Capital 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.