Correlation Between PSI Software and AdCapital

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

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

Diversification Opportunities for PSI Software and AdCapital

0.73

Correlation Coefficient

PSI Software  AdCapital

Poor diversification

The 3 months correlation between PSI and AdCapital is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding PSI Software AG and AdCapital AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdCapital AG and PSI Software 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 PSI Software AG are associated (or correlated) with AdCapital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdCapital AG has no effect on the direction of PSI Software i.e., PSI Software and AdCapital go up and down completely randomly.

Pair Corralation between PSI Software and AdCapital

Assuming the 90 days trading horizon PSI Software AG is expected to generate 0.69 times more return on investment than AdCapital. However, PSI Software AG is 1.46 times less risky than AdCapital. It trades about -0.09 of its potential returns per unit of risk. AdCapital AG is currently generating about -0.06 per unit of risk. If you would invest  2,140  in PSI Software AG on September 12, 2024 and sell it today you would lose (50.00) from holding PSI Software AG or give up 2.34% of portfolio value over 90 days.

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

PSI Software AG  vs.  AdCapital AG

PSI Software AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

AdCapital AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AdCapital AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PSI Software and AdCapital

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

The idea behind PSI Software AG and AdCapital AG 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.