Correlation Between GBS Software and CPU SOFTWAREHOUSE

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

By analyzing existing cross correlation between GBS Software AG and CPU SOFTWAREHOUSE, you can compare the effects of market volatilities on GBS Software and CPU SOFTWAREHOUSE 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 GBS Software with a short position of CPU SOFTWAREHOUSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of GBS Software and CPU SOFTWAREHOUSE.

Diversification Opportunities for GBS Software and CPU SOFTWAREHOUSE

0.42

Correlation Coefficient

GBS Software  CPU SOFTWAREHOUSE

Very weak diversification

The 3 months correlation between GBS and CPU is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding GBS Software AG and CPU SOFTWAREHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPU SOFTWAREHOUSE and GBS Software 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 GBS Software AG are associated (or correlated) with CPU SOFTWAREHOUSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPU SOFTWAREHOUSE has no effect on the direction of GBS Software i.e., GBS Software and CPU SOFTWAREHOUSE go up and down completely randomly.

Pair Corralation between GBS Software and CPU SOFTWAREHOUSE

Assuming the 90 days trading horizon GBS Software is expected to generate 1.37 times less return on investment than CPU SOFTWAREHOUSE. But when comparing it to its historical volatility, GBS Software AG is 3.31 times less risky than CPU SOFTWAREHOUSE. It trades about 0.22 of its potential returns per unit of risk. CPU SOFTWAREHOUSE is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  98.00  in CPU SOFTWAREHOUSE on October 25, 2024 and sell it today you would earn a total of  30.00  from holding CPU SOFTWAREHOUSE or generate 30.61% return on investment over 90 days.

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

GBS Software AG  vs.  CPU SOFTWAREHOUSE

GBS Software AG

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GBS Software AG are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GBS Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

CPU SOFTWAREHOUSE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CPU SOFTWAREHOUSE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, CPU SOFTWAREHOUSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GBS Software and CPU SOFTWAREHOUSE

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

The idea behind GBS Software AG and CPU SOFTWAREHOUSE 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.