Correlation Between California Software and Electrosteel Castings

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

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

Diversification Opportunities for California Software and Electrosteel Castings

0.87

Correlation Coefficient

California Software  Electrosteel Castings

Very poor diversification

The 3 months correlation between California and Electrosteel is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding California Software and Electrosteel Castings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrosteel Castings 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 Electrosteel Castings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrosteel Castings has no effect on the direction of California Software i.e., California Software and Electrosteel Castings go up and down completely randomly.

Pair Corralation between California Software and Electrosteel Castings

Assuming the 90 days trading horizon California Software is expected to generate 0.97 times more return on investment than Electrosteel Castings. However, California Software is 1.03 times less risky than Electrosteel Castings. It trades about 0.01 of its potential returns per unit of risk. Electrosteel Castings Limited is currently generating about -0.06 per unit of risk. If you would invest  1,690  in California Software on September 30, 2024 and sell it today you would lose (49.00) from holding California Software or give up 2.9% of portfolio value over 90 days.

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

California Software  vs.  Electrosteel Castings 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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with California Software and Electrosteel Castings

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

The idea behind California Software and Electrosteel Castings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.