Correlation Between BCE and Software Acquisition

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

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

Diversification Opportunities for BCE and Software Acquisition

0.05

Correlation Coefficient

BCE  Software Acquisition

Significant diversification

The 3 months correlation between BCE and Software is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition and BCE 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 BCE Inc are associated (or correlated) with Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of BCE i.e., BCE and Software Acquisition go up and down completely randomly.

Pair Corralation between BCE and Software Acquisition

Considering the 90-day investment horizon BCE Inc is expected to generate 0.33 times more return on investment than Software Acquisition. However, BCE Inc is 3.01 times less risky than Software Acquisition. It trades about 0.07 of its potential returns per unit of risk. Software Acquisition Group is currently generating about 0.01 per unit of risk. If you would invest  2,245  in BCE Inc on December 19, 2024 and sell it today you would earn a total of  133.00  from holding BCE Inc or generate 5.92% return on investment over 90 days.

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

BCE Inc  vs.  Software Acquisition Group

BCE Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, BCE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Software Acquisition

Risk-Adjusted Performance

Very Weak

Over the last 90 days Software Acquisition Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Software Acquisition is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BCE and Software Acquisition

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

The idea behind BCE Inc and Software Acquisition Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.