Correlation Between BASE and RenoWorks Software

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

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

Diversification Opportunities for BASE and RenoWorks Software

0.06

Correlation Coefficient

BASE  RenoWorks Software

Significant diversification

The 3 months correlation between BASE and RenoWorks is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding BASE Inc and RenoWorks Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenoWorks Software 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 RenoWorks Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenoWorks Software has no effect on the direction of BASE i.e., BASE and RenoWorks Software go up and down completely randomly.

Pair Corralation between BASE and RenoWorks Software

Assuming the 90 days horizon BASE Inc is expected to generate 2.3 times more return on investment than RenoWorks Software. However, BASE is 2.3 times more volatile than RenoWorks Software. It trades about 0.12 of its potential returns per unit of risk. RenoWorks Software is currently generating about 0.06 per unit of risk. If you would invest  204.00  in BASE Inc on December 29, 2024 and sell it today you would earn a total of  50.00  from holding BASE Inc or generate 24.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

BASE Inc  vs.  RenoWorks Software

BASE Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BASE Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, BASE reported solid returns over the last few months and may actually be approaching a breakup point.

RenoWorks Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RenoWorks Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, RenoWorks Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BASE and RenoWorks Software

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

The idea behind BASE Inc and RenoWorks Software 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.