Correlation Between Cass Information and ABM Industries

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

By analyzing existing cross correlation between Cass Information Systems and ABM Industries Incorporated, you can compare the effects of market volatilities on Cass Information and ABM Industries 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 Cass Information with a short position of ABM Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cass Information and ABM Industries.

Diversification Opportunities for Cass Information and ABM Industries

0.66

Correlation Coefficient

Cass Information  ABM Industries

Poor diversification

The 3 months correlation between Cass and ABM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cass Information Systems and ABM Industries Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABM Industries and Cass Information 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 Cass Information Systems are associated (or correlated) with ABM Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABM Industries has no effect on the direction of Cass Information i.e., Cass Information and ABM Industries go up and down completely randomly.

Pair Corralation between Cass Information and ABM Industries

Given the investment horizon of 90 days Cass Information is expected to generate 1.05 times less return on investment than ABM Industries. In addition to that, Cass Information is 1.34 times more volatile than ABM Industries Incorporated. It trades about 0.1 of its total potential returns per unit of risk. ABM Industries Incorporated is currently generating about 0.14 per unit of volatility. If you would invest  5,253  in ABM Industries Incorporated on August 30, 2024 and sell it today you would earn a total of  427.00  from holding ABM Industries Incorporated or generate 8.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.73%
Values	Daily Returns

Cass Information Systems  vs.  ABM Industries Incorporated

Cass Information Systems

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cass Information Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cass Information is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

ABM Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABM Industries Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cass Information and ABM Industries

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

The idea behind Cass Information Systems and ABM Industries Incorporated 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.