Correlation Between Direct Communication and Capgemini

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

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

Diversification Opportunities for Direct Communication and Capgemini

0.78

Correlation Coefficient

Direct Communication  Capgemini

Poor diversification

The 3 months correlation between Direct and Capgemini is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Direct Communication Solutions and Capgemini SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE and Direct Communication 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 Direct Communication Solutions are associated (or correlated) with Capgemini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capgemini SE has no effect on the direction of Direct Communication i.e., Direct Communication and Capgemini go up and down completely randomly.

Pair Corralation between Direct Communication and Capgemini

Given the investment horizon of 90 days Direct Communication Solutions is expected to generate 1.65 times more return on investment than Capgemini. However, Direct Communication is 1.65 times more volatile than Capgemini SE. It trades about -0.03 of its potential returns per unit of risk. Capgemini SE is currently generating about -0.11 per unit of risk. If you would invest  235.00  in Direct Communication Solutions on September 4, 2024 and sell it today you would lose (29.00) from holding Direct Communication Solutions or give up 12.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Direct Communication Solutions  vs.  Capgemini SE

Direct Communication

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Communication Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal 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.

Capgemini SE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Direct Communication and Capgemini

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

The idea behind Direct Communication Solutions and Capgemini SE 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.