Correlation Between CSP and Formula Systems

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

By analyzing existing cross correlation between CSP Inc and Formula Systems 1985, you can compare the effects of market volatilities on CSP and Formula Systems 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 CSP with a short position of Formula Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSP and Formula Systems.

Diversification Opportunities for CSP and Formula Systems

0.27

Correlation Coefficient

CSP  Formula Systems

Modest diversification

The 3 months correlation between CSP and Formula is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding CSP Inc and Formula Systems 1985 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formula Systems 1985 and CSP 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 CSP Inc are associated (or correlated) with Formula Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formula Systems 1985 has no effect on the direction of CSP i.e., CSP and Formula Systems go up and down completely randomly.

Pair Corralation between CSP and Formula Systems

Given the investment horizon of 90 days CSP Inc is expected to under-perform the Formula Systems. In addition to that, CSP is 1.78 times more volatile than Formula Systems 1985. It trades about -0.02 of its total potential returns per unit of risk. Formula Systems 1985 is currently generating about 0.02 per unit of volatility. If you would invest  8,900  in Formula Systems 1985 on December 29, 2024 and sell it today you would earn a total of  94.00  from holding Formula Systems 1985 or generate 1.06% return on investment over 90 days.

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

CSP Inc  vs.  Formula Systems 1985

CSP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CSP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Formula Systems 1985

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Formula Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CSP and Formula Systems

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

The idea behind CSP Inc and Formula Systems 1985 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.