Correlation Between CAE and Descartes Systems

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

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

Diversification Opportunities for CAE and Descartes Systems

0.86

Correlation Coefficient

CAE  Descartes Systems

Very poor diversification

The 3 months correlation between CAE and Descartes is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding CAE Inc and Descartes Systems Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Descartes Systems and CAE 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 CAE Inc are associated (or correlated) with Descartes Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Descartes Systems has no effect on the direction of CAE i.e., CAE and Descartes Systems go up and down completely randomly.

Pair Corralation between CAE and Descartes Systems

Assuming the 90 days trading horizon CAE Inc is expected to generate 1.46 times more return on investment than Descartes Systems. However, CAE is 1.46 times more volatile than Descartes Systems Group. It trades about 0.24 of its potential returns per unit of risk. Descartes Systems Group is currently generating about 0.22 per unit of risk. If you would invest  2,439  in CAE Inc on September 4, 2024 and sell it today you would earn a total of  875.00  from holding CAE Inc or generate 35.88% return on investment over 90 days.

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

CAE Inc  vs.  Descartes Systems Group

CAE Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAE Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, CAE displayed solid returns over the last few months and may actually be approaching a breakup point.

Descartes Systems

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Descartes Systems Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Descartes Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAE and Descartes Systems

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

The idea behind CAE Inc and Descartes Systems 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.