Correlation Between Salesforce and NORTHEAST UTILITIES

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

By analyzing existing cross correlation between Salesforce and NORTHEAST UTILITIES, you can compare the effects of market volatilities on Salesforce and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and NORTHEAST UTILITIES.

Diversification Opportunities for Salesforce and NORTHEAST UTILITIES

-0.56

Correlation Coefficient

Salesforce  NORTHEAST UTILITIES

Excellent diversification

The 3 months correlation between Salesforce and NORTHEAST is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and NORTHEAST UTILITIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHEAST UTILITIES 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 NORTHEAST UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHEAST UTILITIES has no effect on the direction of Salesforce i.e., Salesforce and NORTHEAST UTILITIES go up and down completely randomly.

Pair Corralation between Salesforce and NORTHEAST UTILITIES

Assuming the 90 days trading horizon Salesforce is expected to under-perform the NORTHEAST UTILITIES. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.52 times less risky than NORTHEAST UTILITIES. The stock trades about -0.23 of its potential returns per unit of risk. The NORTHEAST UTILITIES is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,500  in NORTHEAST UTILITIES on October 23, 2024 and sell it today you would earn a total of  50.00  from holding NORTHEAST UTILITIES or generate 0.91% return on investment over 90 days.

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

Salesforce  vs.  NORTHEAST UTILITIES

Salesforce

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Salesforce unveiled solid returns over the last few months and may actually be approaching a breakup point.

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Salesforce and NORTHEAST UTILITIES

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

The idea behind Salesforce and NORTHEAST UTILITIES 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.