Correlation Between IQIYI and Software Effective

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

By analyzing existing cross correlation between iQIYI Inc and Software Effective Solutions, you can compare the effects of market volatilities on IQIYI and Software Effective 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 IQIYI with a short position of Software Effective. Check out your portfolio center. Please also check ongoing floating volatility patterns of IQIYI and Software Effective.

Diversification Opportunities for IQIYI and Software Effective

0.82

Correlation Coefficient

IQIYI  Software Effective

Very poor diversification

The 3 months correlation between IQIYI and Software is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iQIYI Inc and Software Effective Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Effective and IQIYI 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 iQIYI Inc are associated (or correlated) with Software Effective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Effective has no effect on the direction of IQIYI i.e., IQIYI and Software Effective go up and down completely randomly.

Pair Corralation between IQIYI and Software Effective

Allowing for the 90-day total investment horizon IQIYI is expected to generate 11.61 times less return on investment than Software Effective. But when comparing it to its historical volatility, iQIYI Inc is 5.36 times less risky than Software Effective. It trades about 0.07 of its potential returns per unit of risk. Software Effective Solutions is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1.20  in Software Effective Solutions on September 16, 2024 and sell it today you would earn a total of  1.30  from holding Software Effective Solutions or generate 108.33% return on investment over 90 days.

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

iQIYI Inc  vs.  Software Effective Solutions

iQIYI Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iQIYI Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, IQIYI reported solid returns over the last few months and may actually be approaching a breakup point.

Software Effective

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Software Effective Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Software Effective revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IQIYI and Software Effective

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

The idea behind iQIYI Inc and Software Effective Solutions 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.