Correlation Between Evolving Systems and Cerence

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

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

Diversification Opportunities for Evolving Systems and Cerence

-0.11

Correlation Coefficient

Evolving Systems  Cerence

Good diversification

The 3 months correlation between Evolving and Cerence is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Evolving Systems and Cerence in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cerence and Evolving 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 Evolving Systems 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 Evolving Systems i.e., Evolving Systems and Cerence go up and down completely randomly.

Pair Corralation between Evolving Systems and Cerence

Given the investment horizon of 90 days Evolving Systems is expected to under-perform the Cerence. But the pink sheet apears to be less risky and, when comparing its historical volatility, Evolving Systems is 2.32 times less risky than Cerence. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Cerence is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,157  in Cerence on October 9, 2024 and sell it today you would lose (139.00) from holding Cerence or give up 6.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	26.21%
Values	Daily Returns

Evolving Systems  vs.  Cerence

Evolving Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolving Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Evolving Systems is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Cerence

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cerence are ranked lower than 14 (%) 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 Evolving Systems and Cerence

The main advantage of trading using opposite Evolving Systems and Cerence positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evolving 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 Evolving Systems 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.

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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.