Correlation Between California Software and HEG

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

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

Diversification Opportunities for California Software and HEG

-0.08

Correlation Coefficient

California Software  HEG

Good diversification

The 3 months correlation between California and HEG is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding California Software and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited 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 HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of California Software i.e., California Software and HEG go up and down completely randomly.

Pair Corralation between California Software and HEG

Assuming the 90 days trading horizon California Software is expected to under-perform the HEG. But the stock apears to be less risky and, when comparing its historical volatility, California Software is 1.74 times less risky than HEG. The stock trades about -0.1 of its potential returns per unit of risk. The HEG Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  48,950  in HEG Limited on October 8, 2024 and sell it today you would earn a total of  3,875  from holding HEG Limited or generate 7.92% 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.  HEG 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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

HEG Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, HEG may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with California Software and HEG

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

The idea behind California Software and HEG 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.