Correlation Between Formula Systems and Shift4 Payments

Can any of the company-specific risk be diversified away by investing in both Formula Systems and Shift4 Payments 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 Shift4 Payments 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 Shift4 Payments, you can compare the effects of market volatilities on Formula Systems and Shift4 Payments 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 Shift4 Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and Shift4 Payments.

Diversification Opportunities for Formula Systems and Shift4 Payments

0.64

Correlation Coefficient

Formula Systems  Shift4 Payments

Poor diversification

The 3 months correlation between Formula and Shift4 is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and Shift4 Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shift4 Payments 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 Shift4 Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shift4 Payments has no effect on the direction of Formula Systems i.e., Formula Systems and Shift4 Payments go up and down completely randomly.

Pair Corralation between Formula Systems and Shift4 Payments

Assuming the 90 days horizon Formula Systems is expected to generate 2.22 times less return on investment than Shift4 Payments. In addition to that, Formula Systems is 1.28 times more volatile than Shift4 Payments. It trades about 0.1 of its total potential returns per unit of risk. Shift4 Payments is currently generating about 0.29 per unit of volatility. If you would invest  7,750  in Shift4 Payments on September 5, 2024 and sell it today you would earn a total of  3,665  from holding Shift4 Payments or generate 47.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Formula Systems 1985  vs.  Shift4 Payments

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.

Shift4 Payments

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shift4 Payments are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Shift4 Payments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and Shift4 Payments

The main advantage of trading using opposite Formula Systems and Shift4 Payments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formula Systems position performs unexpectedly, Shift4 Payments 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 Shift4 Payments will offset losses from the drop in Shift4 Payments' long position.

The idea behind Formula Systems 1985 and Shift4 Payments 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.