Correlation Between American Software and EGain

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

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

Diversification Opportunities for American Software and EGain

-0.49

Correlation Coefficient

American Software  EGain

Very good diversification

The 3 months correlation between American and EGain is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Software and eGain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eGain and American 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 American Software are associated (or correlated) with EGain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eGain has no effect on the direction of American Software i.e., American Software and EGain go up and down completely randomly.

Pair Corralation between American Software and EGain

Assuming the 90 days horizon American Software is expected to generate 0.29 times more return on investment than EGain. However, American Software is 3.49 times less risky than EGain. It trades about -0.15 of its potential returns per unit of risk. eGain is currently generating about -0.07 per unit of risk. If you would invest  1,121  in American Software on September 2, 2024 and sell it today you would lose (44.00) from holding American Software or give up 3.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	35.94%
Values	Daily Returns

American Software  vs.  eGain

American Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Software 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.

eGain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eGain has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with American Software and EGain

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

The idea behind American Software and eGain 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.