Correlation Between Bodhi Tree and Tera Software

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

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

Diversification Opportunities for Bodhi Tree and Tera Software

-0.32

Correlation Coefficient

Bodhi Tree  Tera Software

Very good diversification

The 3 months correlation between Bodhi and Tera is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bodhi Tree Multimedia and Tera Software Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tera Software Limited and Bodhi Tree 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 Bodhi Tree Multimedia are associated (or correlated) with Tera Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tera Software Limited has no effect on the direction of Bodhi Tree i.e., Bodhi Tree and Tera Software go up and down completely randomly.

Pair Corralation between Bodhi Tree and Tera Software

Assuming the 90 days trading horizon Bodhi Tree is expected to generate 2.29 times less return on investment than Tera Software. In addition to that, Bodhi Tree is 1.52 times more volatile than Tera Software Limited. It trades about 0.1 of its total potential returns per unit of risk. Tera Software Limited is currently generating about 0.36 per unit of volatility. If you would invest  19,260  in Tera Software Limited on October 27, 2024 and sell it today you would earn a total of  4,872  from holding Tera Software Limited or generate 25.3% return on investment over 90 days.

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

Bodhi Tree Multimedia  vs.  Tera Software Limited

Bodhi Tree Multimedia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tera Software Limited

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tera Software Limited are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Tera Software reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bodhi Tree and Tera Software

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

The idea behind Bodhi Tree Multimedia and Tera Software Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.