Correlation Between Eros International and California Software

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

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

Diversification Opportunities for Eros International and California Software

0.36

Correlation Coefficient

Eros International  California Software

Weak diversification

The 3 months correlation between Eros and California is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Eros International Media and California Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Software and Eros International 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 Eros International Media are associated (or correlated) with California Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Software has no effect on the direction of Eros International i.e., Eros International and California Software go up and down completely randomly.

Pair Corralation between Eros International and California Software

Assuming the 90 days trading horizon Eros International Media is expected to under-perform the California Software. But the stock apears to be less risky and, when comparing its historical volatility, Eros International Media is 1.1 times less risky than California Software. The stock trades about -0.06 of its potential returns per unit of risk. The California Software is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,083  in California Software on August 31, 2024 and sell it today you would lose (228.00) from holding California Software or give up 10.95% of portfolio value over 90 days.

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

Eros International Media  vs.  California Software

Eros International Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eros International Media has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Eros International and California Software

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

The idea behind Eros International Media and California Software 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.