Correlation Between Indra Sistemas and Capgemini

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

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

Diversification Opportunities for Indra Sistemas and Capgemini

0.73

Correlation Coefficient

Indra Sistemas  Capgemini

Poor diversification

The 3 months correlation between Indra and Capgemini is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Indra Sistemas SA and Capgemini SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE ADR and Indra Sistemas 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 Indra Sistemas SA 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 ADR has no effect on the direction of Indra Sistemas i.e., Indra Sistemas and Capgemini go up and down completely randomly.

Pair Corralation between Indra Sistemas and Capgemini

Assuming the 90 days horizon Indra Sistemas SA is expected to under-perform the Capgemini. But the pink sheet apears to be less risky and, when comparing its historical volatility, Indra Sistemas SA is 2.19 times less risky than Capgemini. The pink sheet trades about -0.27 of its potential returns per unit of risk. The Capgemini SE ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,187  in Capgemini SE ADR on September 27, 2024 and sell it today you would earn a total of  69.00  from holding Capgemini SE ADR or generate 2.17% return on investment over 90 days.

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

Indra Sistemas SA  vs.  Capgemini SE ADR

Indra Sistemas SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indra Sistemas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Capgemini SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capgemini SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Indra Sistemas and Capgemini

The main advantage of trading using opposite Indra Sistemas and Capgemini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indra Sistemas 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 Indra Sistemas SA and Capgemini SE ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.