Correlation Between Sofwave Medical and Computer Direct

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

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

Diversification Opportunities for Sofwave Medical and Computer Direct

-0.48

Correlation Coefficient

Sofwave Medical  Computer Direct

Very good diversification

The 3 months correlation between Sofwave and Computer is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sofwave Medical and Computer Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Direct and Sofwave Medical 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 Sofwave Medical are associated (or correlated) with Computer Direct. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Direct has no effect on the direction of Sofwave Medical i.e., Sofwave Medical and Computer Direct go up and down completely randomly.

Pair Corralation between Sofwave Medical and Computer Direct

Assuming the 90 days trading horizon Sofwave Medical is expected to under-perform the Computer Direct. In addition to that, Sofwave Medical is 1.77 times more volatile than Computer Direct. It trades about -0.06 of its total potential returns per unit of risk. Computer Direct is currently generating about 0.55 per unit of volatility. If you would invest  2,645,019  in Computer Direct on September 27, 2024 and sell it today you would earn a total of  1,423,981  from holding Computer Direct or generate 53.84% return on investment over 90 days.

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

Sofwave Medical  vs.  Computer Direct

Sofwave Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sofwave Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Computer Direct

Risk-Adjusted Performance

43 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Direct are ranked lower than 43 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Computer Direct sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sofwave Medical and Computer Direct

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

The idea behind Sofwave Medical and Computer Direct 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.