Correlation Between Descartes Systems and Cerence

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

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

Diversification Opportunities for Descartes Systems and Cerence

0.22

Correlation Coefficient

Descartes Systems  Cerence

Modest diversification

The 3 months correlation between Descartes and Cerence is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Cerence in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cerence and Descartes Systems 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 Descartes Systems Group are associated (or correlated) with Cerence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cerence has no effect on the direction of Descartes Systems i.e., Descartes Systems and Cerence go up and down completely randomly.

Pair Corralation between Descartes Systems and Cerence

Given the investment horizon of 90 days Descartes Systems Group is expected to under-perform the Cerence. But the stock apears to be less risky and, when comparing its historical volatility, Descartes Systems Group is 10.56 times less risky than Cerence. The stock trades about -0.1 of its potential returns per unit of risk. The Cerence is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  782.00  in Cerence on December 22, 2024 and sell it today you would earn a total of  175.00  from holding Cerence or generate 22.38% return on investment over 90 days.

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

Descartes Systems Group  vs.  Cerence

Descartes Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Descartes Systems Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cerence

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cerence are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Cerence exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Descartes Systems and Cerence

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

The idea behind Descartes Systems Group and Cerence 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.