Correlation Between Formula Systems and VNET Group

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

Diversification Opportunities for Formula Systems and VNET Group

0.39

Correlation Coefficient

Formula Systems  VNET Group

Weak diversification

The 3 months correlation between Formula and VNET is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and VNET Group DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VNET Group DRC 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 VNET Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VNET Group DRC has no effect on the direction of Formula Systems i.e., Formula Systems and VNET Group go up and down completely randomly.

Pair Corralation between Formula Systems and VNET Group

Assuming the 90 days horizon Formula Systems 1985 is expected to generate 0.53 times more return on investment than VNET Group. However, Formula Systems 1985 is 1.89 times less risky than VNET Group. It trades about 0.3 of its potential returns per unit of risk. VNET Group DRC is currently generating about 0.12 per unit of risk. If you would invest  7,959  in Formula Systems 1985 on September 12, 2024 and sell it today you would earn a total of  1,691  from holding Formula Systems 1985 or generate 21.25% 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.  VNET Group DRC

Formula Systems 1985

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Formula Systems showed solid returns over the last few months and may actually be approaching a breakup point.

VNET Group DRC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VNET Group DRC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, VNET Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and VNET Group

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

The idea behind Formula Systems 1985 and VNET Group DRC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.