Correlation Between Formula Systems and Affirm Holdings

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

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

Diversification Opportunities for Formula Systems and Affirm Holdings

0.46

Correlation Coefficient

Formula Systems  Affirm Holdings

Very weak diversification

The 3 months correlation between Formula and Affirm is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and Affirm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affirm Holdings and Formula 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 Formula Systems 1985 are associated (or correlated) with Affirm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affirm Holdings has no effect on the direction of Formula Systems i.e., Formula Systems and Affirm Holdings go up and down completely randomly.

Pair Corralation between Formula Systems and Affirm Holdings

Assuming the 90 days horizon Formula Systems is expected to generate 3.66 times less return on investment than Affirm Holdings. But when comparing it to its historical volatility, Formula Systems 1985 is 1.76 times less risky than Affirm Holdings. It trades about 0.1 of its potential returns per unit of risk. Affirm Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,964  in Affirm Holdings on September 5, 2024 and sell it today you would earn a total of  3,112  from holding Affirm Holdings or generate 78.51% return on investment over 90 days.

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

Formula Systems 1985  vs.  Affirm Holdings

Formula Systems 1985

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Formula Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Affirm Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Affirm Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Affirm Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and Affirm Holdings

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

The idea behind Formula Systems 1985 and Affirm Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.