Correlation Between Paycom Software and Carnival Plc

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

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

Diversification Opportunities for Paycom Software and Carnival Plc

0.91

Correlation Coefficient

Paycom Software  Carnival Plc

Almost no diversification

The 3 months correlation between Paycom and Carnival is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Paycom Software and Carnival plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival plc and Paycom 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 Paycom Software are associated (or correlated) with Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival plc has no effect on the direction of Paycom Software i.e., Paycom Software and Carnival Plc go up and down completely randomly.

Pair Corralation between Paycom Software and Carnival Plc

Assuming the 90 days trading horizon Paycom Software is expected to under-perform the Carnival Plc. In addition to that, Paycom Software is 1.05 times more volatile than Carnival plc. It trades about -0.24 of its total potential returns per unit of risk. Carnival plc is currently generating about -0.09 per unit of volatility. If you would invest  16,100  in Carnival plc on October 7, 2024 and sell it today you would lose (644.00) from holding Carnival plc or give up 4.0% of portfolio value over 90 days.

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

Paycom Software  vs.  Carnival plc

Paycom Software

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Paycom Software are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Paycom Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Carnival plc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival plc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Carnival Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Paycom Software and Carnival Plc

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

The idea behind Paycom Software and Carnival plc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.