Correlation Between Cambridge Technology and Rainbow Childrens

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

By analyzing existing cross correlation between Cambridge Technology Enterprises and Rainbow Childrens Medicare, you can compare the effects of market volatilities on Cambridge Technology and Rainbow Childrens 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 Cambridge Technology with a short position of Rainbow Childrens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cambridge Technology and Rainbow Childrens.

Diversification Opportunities for Cambridge Technology and Rainbow Childrens

-0.3

Correlation Coefficient

Cambridge Technology  Rainbow Childrens

Very good diversification

The 3 months correlation between Cambridge and Rainbow is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Cambridge Technology Enterpris and Rainbow Childrens Medicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rainbow Childrens and Cambridge Technology 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 Cambridge Technology Enterprises are associated (or correlated) with Rainbow Childrens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rainbow Childrens has no effect on the direction of Cambridge Technology i.e., Cambridge Technology and Rainbow Childrens go up and down completely randomly.

Pair Corralation between Cambridge Technology and Rainbow Childrens

Assuming the 90 days trading horizon Cambridge Technology Enterprises is expected to generate 1.68 times more return on investment than Rainbow Childrens. However, Cambridge Technology is 1.68 times more volatile than Rainbow Childrens Medicare. It trades about 0.35 of its potential returns per unit of risk. Rainbow Childrens Medicare is currently generating about -0.13 per unit of risk. If you would invest  8,576  in Cambridge Technology Enterprises on September 25, 2024 and sell it today you would earn a total of  2,138  from holding Cambridge Technology Enterprises or generate 24.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Cambridge Technology Enterpris  vs.  Rainbow Childrens Medicare

Cambridge Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cambridge Technology Enterprises are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Cambridge Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rainbow Childrens

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cambridge Technology and Rainbow Childrens

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

The idea behind Cambridge Technology Enterprises and Rainbow Childrens Medicare 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.