Correlation Between BASE and PROS Holdings

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

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

Diversification Opportunities for BASE and PROS Holdings

0.03

Correlation Coefficient

BASE  PROS Holdings

Significant diversification

The 3 months correlation between BASE and PROS is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding BASE Inc and PROS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROS Holdings and BASE 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 BASE Inc are associated (or correlated) with PROS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PROS Holdings has no effect on the direction of BASE i.e., BASE and PROS Holdings go up and down completely randomly.

Pair Corralation between BASE and PROS Holdings

Assuming the 90 days horizon BASE Inc is expected to generate 1.43 times more return on investment than PROS Holdings. However, BASE is 1.43 times more volatile than PROS Holdings. It trades about 0.21 of its potential returns per unit of risk. PROS Holdings is currently generating about 0.16 per unit of risk. If you would invest  126.00  in BASE Inc on September 23, 2024 and sell it today you would earn a total of  67.00  from holding BASE Inc or generate 53.17% return on investment over 90 days.

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

BASE Inc  vs.  PROS Holdings

BASE Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BASE Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, BASE reported solid returns over the last few months and may actually be approaching a breakup point.

PROS Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PROS Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, PROS Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BASE and PROS Holdings

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

The idea behind BASE Inc and PROS Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.