Correlation Between Open Text and CAE

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

By analyzing existing cross correlation between Open Text Corp and CAE Inc, you can compare the effects of market volatilities on Open Text and CAE 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 Open Text with a short position of CAE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Open Text and CAE.

Diversification Opportunities for Open Text and CAE

-0.42

Correlation Coefficient

Open Text  CAE

Very good diversification

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

Pair Corralation between Open Text and CAE

Assuming the 90 days trading horizon Open Text is expected to generate 150.66 times less return on investment than CAE. But when comparing it to its historical volatility, Open Text Corp is 1.08 times less risky than CAE. It trades about 0.0 of its potential returns per unit of risk. CAE Inc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,395  in CAE Inc on August 31, 2024 and sell it today you would earn a total of  896.00  from holding CAE Inc or generate 37.41% return on investment over 90 days.

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

Open Text Corp  vs.  CAE Inc

Open Text Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Open Text Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Open Text is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CAE Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAE Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, CAE displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Open Text and CAE

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

The idea behind Open Text Corp and CAE Inc 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.