Correlation Between California Software and Cholamandalam Financial

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

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

Diversification Opportunities for California Software and Cholamandalam Financial

0.5

Correlation Coefficient

California Software  Cholamandalam Financial

Very weak diversification

The 3 months correlation between California and Cholamandalam is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding California Software and Cholamandalam Financial Holdin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Financial 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 Cholamandalam Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Financial has no effect on the direction of California Software i.e., California Software and Cholamandalam Financial go up and down completely randomly.

Pair Corralation between California Software and Cholamandalam Financial

Assuming the 90 days trading horizon California Software is expected to generate 6.32 times less return on investment than Cholamandalam Financial. In addition to that, California Software is 1.71 times more volatile than Cholamandalam Financial Holdings. It trades about 0.01 of its total potential returns per unit of risk. Cholamandalam Financial Holdings is currently generating about 0.09 per unit of volatility. If you would invest  60,937  in Cholamandalam Financial Holdings on October 25, 2024 and sell it today you would earn a total of  83,228  from holding Cholamandalam Financial Holdings or generate 136.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.39%
Values	Daily Returns

California Software  vs.  Cholamandalam Financial Holdin

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with California Software and Cholamandalam Financial

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

The idea behind California Software and Cholamandalam Financial Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .