Correlation Between California Software and REC

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

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

Diversification Opportunities for California Software and REC

0.17

Correlation Coefficient

California Software  REC

Average diversification

The 3 months correlation between California and REC is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding California Software and REC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC 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 REC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Limited has no effect on the direction of California Software i.e., California Software and REC go up and down completely randomly.

Pair Corralation between California Software and REC

Assuming the 90 days trading horizon California Software is expected to generate 1.08 times more return on investment than REC. However, California Software is 1.08 times more volatile than REC Limited. It trades about 0.01 of its potential returns per unit of risk. REC Limited is currently generating about -0.06 per unit of risk. If you would invest  1,977  in California Software on October 12, 2024 and sell it today you would earn a total of  1.00  from holding California Software or generate 0.05% return on investment over 90 days.

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

California Software  vs.  REC 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

REC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with California Software and REC

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

The idea behind California Software and REC 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 Stocks Directory module to find actively traded stocks across global markets.