Correlation Between First State and Capgemini

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

By analyzing existing cross correlation between First State Financial and Capgemini SE, you can compare the effects of market volatilities on First State and Capgemini 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 First State with a short position of Capgemini. Check out your portfolio center. Please also check ongoing floating volatility patterns of First State and Capgemini.

Diversification Opportunities for First State and Capgemini

0.0

Correlation Coefficient

First State  Capgemini

Pay attention - limited upside

The 3 months correlation between First and Capgemini is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding First State Financial and Capgemini SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE and First State 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 First State Financial are associated (or correlated) with Capgemini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capgemini SE has no effect on the direction of First State i.e., First State and Capgemini go up and down completely randomly.

Pair Corralation between First State and Capgemini

Given the investment horizon of 90 days First State Financial is expected to generate 8.5 times more return on investment than Capgemini. However, First State is 8.5 times more volatile than Capgemini SE. It trades about 0.1 of its potential returns per unit of risk. Capgemini SE is currently generating about 0.0 per unit of risk. If you would invest  1.53  in First State Financial on October 4, 2024 and sell it today you would earn a total of  2.94  from holding First State Financial or generate 192.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	26.46%
Values	Daily Returns

First State Financial  vs.  Capgemini SE

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First State Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First State is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Capgemini SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capgemini SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First State and Capgemini

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

The idea behind First State Financial and Capgemini SE 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.