Correlation Between Public Service and SoftBank Group

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

By analyzing existing cross correlation between Public Service Enterprise and SoftBank Group Corp, you can compare the effects of market volatilities on Public Service and SoftBank Group 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 Public Service with a short position of SoftBank Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and SoftBank Group.

Diversification Opportunities for Public Service and SoftBank Group

-0.08

Correlation Coefficient

Public Service  SoftBank Group

Good diversification

The 3 months correlation between Public and SoftBank is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and SoftBank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Group Corp and Public Service 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 Public Service Enterprise are associated (or correlated) with SoftBank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Group Corp has no effect on the direction of Public Service i.e., Public Service and SoftBank Group go up and down completely randomly.

Pair Corralation between Public Service and SoftBank Group

Assuming the 90 days trading horizon Public Service is expected to generate 1.78 times less return on investment than SoftBank Group. But when comparing it to its historical volatility, Public Service Enterprise is 2.15 times less risky than SoftBank Group. It trades about 0.07 of its potential returns per unit of risk. SoftBank Group Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  555,735  in SoftBank Group Corp on September 23, 2024 and sell it today you would earn a total of  320,265  from holding SoftBank Group Corp or generate 57.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.74%
Values	Daily Returns

Public Service Enterprise  vs.  SoftBank Group Corp

Public Service Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Public Service is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SoftBank Group Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SoftBank Group Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SoftBank Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Public Service and SoftBank Group

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

The idea behind Public Service Enterprise and SoftBank Group Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.