Correlation Between California Software and Home First

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

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

Diversification Opportunities for California Software and Home First

0.8

Correlation Coefficient

California Software  Home First

Very poor diversification

The 3 months correlation between California and Home is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding California Software and Home First Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home First Finance 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 Home First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home First Finance has no effect on the direction of California Software i.e., California Software and Home First go up and down completely randomly.

Pair Corralation between California Software and Home First

Assuming the 90 days trading horizon California Software is expected to generate 10.02 times less return on investment than Home First. In addition to that, California Software is 1.42 times more volatile than Home First Finance. It trades about 0.0 of its total potential returns per unit of risk. Home First Finance is currently generating about 0.04 per unit of volatility. If you would invest  71,922  in Home First Finance on September 28, 2024 and sell it today you would earn a total of  28,333  from holding Home First Finance or generate 39.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

California Software  vs.  Home First Finance

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.

Home First Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home First Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with California Software and Home First

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

The idea behind California Software and Home First Finance 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.