Correlation Between Salesforce and GENERAL

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

By analyzing existing cross correlation between Salesforce and GENERAL ELEC CAP, you can compare the effects of market volatilities on Salesforce and GENERAL 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 Salesforce with a short position of GENERAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and GENERAL.

Diversification Opportunities for Salesforce and GENERAL

0.47

Correlation Coefficient

Salesforce  GENERAL

Very weak diversification

The 3 months correlation between Salesforce and GENERAL is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP and Salesforce 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 Salesforce are associated (or correlated) with GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Salesforce i.e., Salesforce and GENERAL go up and down completely randomly.

Pair Corralation between Salesforce and GENERAL

Considering the 90-day investment horizon Salesforce is expected to under-perform the GENERAL. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.05 times less risky than GENERAL. The stock trades about -0.1 of its potential returns per unit of risk. The GENERAL ELEC CAP is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,989  in GENERAL ELEC CAP on October 26, 2024 and sell it today you would earn a total of  99.00  from holding GENERAL ELEC CAP or generate 0.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	31.58%
Values	Daily Returns

Salesforce  vs.  GENERAL ELEC CAP

Salesforce

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Salesforce and GENERAL

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

The idea behind Salesforce and GENERAL ELEC CAP 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.