Correlation Between Formula Systems and CSP

Can any of the company-specific risk be diversified away by investing in both Formula Systems and CSP 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 CSP 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 CSP Inc, you can compare the effects of market volatilities on Formula Systems and CSP 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 CSP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and CSP.

Diversification Opportunities for Formula Systems and CSP

0.34

Correlation Coefficient

Formula Systems  CSP

Weak diversification

The 3 months correlation between Formula and CSP is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and CSP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSP Inc 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 CSP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSP Inc has no effect on the direction of Formula Systems i.e., Formula Systems and CSP go up and down completely randomly.

Pair Corralation between Formula Systems and CSP

Assuming the 90 days horizon Formula Systems 1985 is expected to generate 0.56 times more return on investment than CSP. However, Formula Systems 1985 is 1.78 times less risky than CSP. It trades about 0.01 of its potential returns per unit of risk. CSP Inc is currently generating about -0.02 per unit of risk. If you would invest  8,900  in Formula Systems 1985 on December 28, 2024 and sell it today you would earn a total of  45.00  from holding Formula Systems 1985 or generate 0.51% return on investment over 90 days.

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

Formula Systems 1985  vs.  CSP Inc

Formula Systems 1985

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Formula Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

CSP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CSP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Formula Systems and CSP

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

The idea behind Formula Systems 1985 and CSP Inc 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.