Correlation Between Descartes Systems and Aspen Technology

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

By analyzing existing cross correlation between Descartes Systems Group and Aspen Technology, you can compare the effects of market volatilities on Descartes Systems and Aspen Technology 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 Descartes Systems with a short position of Aspen Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Descartes Systems and Aspen Technology.

Diversification Opportunities for Descartes Systems and Aspen Technology

0.93

Correlation Coefficient

Descartes Systems  Aspen Technology

Almost no diversification

The 3 months correlation between Descartes and Aspen is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Aspen Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Technology and Descartes Systems 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 Descartes Systems Group are associated (or correlated) with Aspen Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Technology has no effect on the direction of Descartes Systems i.e., Descartes Systems and Aspen Technology go up and down completely randomly.

Pair Corralation between Descartes Systems and Aspen Technology

Given the investment horizon of 90 days Descartes Systems Group is expected to generate 1.35 times more return on investment than Aspen Technology. However, Descartes Systems is 1.35 times more volatile than Aspen Technology. It trades about 0.17 of its potential returns per unit of risk. Aspen Technology is currently generating about 0.07 per unit of risk. If you would invest  10,303  in Descartes Systems Group on September 19, 2024 and sell it today you would earn a total of  1,622  from holding Descartes Systems Group or generate 15.74% return on investment over 90 days.

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

Descartes Systems Group  vs.  Aspen Technology

Descartes Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Descartes Systems Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Descartes Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Aspen Technology

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Aspen Technology is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Descartes Systems and Aspen Technology

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

The idea behind Descartes Systems Group and Aspen Technology 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.