Correlation Between California Software and Centum Electronics

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

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

Diversification Opportunities for California Software and Centum Electronics

-0.28

Correlation Coefficient

California Software  Centum Electronics

Very good diversification

The 3 months correlation between California and Centum is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding California Software and Centum Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centum Electronics and California Software 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 California Software are associated (or correlated) with Centum Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centum Electronics has no effect on the direction of California Software i.e., California Software and Centum Electronics go up and down completely randomly.

Pair Corralation between California Software and Centum Electronics

Assuming the 90 days trading horizon California Software is expected to generate 10.8 times less return on investment than Centum Electronics. But when comparing it to its historical volatility, California Software is 1.86 times less risky than Centum Electronics. It trades about 0.01 of its potential returns per unit of risk. Centum Electronics Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  175,710  in Centum Electronics Limited on October 12, 2024 and sell it today you would earn a total of  24,580  from holding Centum Electronics Limited or generate 13.99% return on investment over 90 days.

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

California Software  vs.  Centum Electronics Limited

California Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Centum Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Centum Electronics Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Centum Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Software and Centum Electronics

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

The idea behind California Software and Centum Electronics 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.