Correlation Between Paramount Communications and Compucom Software

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

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

Diversification Opportunities for Paramount Communications and Compucom Software

0.89

Correlation Coefficient

Paramount Communications  Compucom Software

Very poor diversification

The 3 months correlation between Paramount and Compucom is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Communications Limit and Compucom Software Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compucom Software and Paramount Communications 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 Paramount Communications Limited are associated (or correlated) with Compucom Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compucom Software has no effect on the direction of Paramount Communications i.e., Paramount Communications and Compucom Software go up and down completely randomly.

Pair Corralation between Paramount Communications and Compucom Software

Assuming the 90 days trading horizon Paramount Communications Limited is expected to generate 0.88 times more return on investment than Compucom Software. However, Paramount Communications Limited is 1.13 times less risky than Compucom Software. It trades about -0.07 of its potential returns per unit of risk. Compucom Software Limited is currently generating about -0.09 per unit of risk. If you would invest  9,479  in Paramount Communications Limited on September 13, 2024 and sell it today you would lose (1,239) from holding Paramount Communications Limited or give up 13.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Paramount Communications Limit  vs.  Compucom Software Limited

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Compucom Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compucom Software Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Paramount Communications and Compucom Software

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

The idea behind Paramount Communications Limited and Compucom Software Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.