Correlation Between PSI Software and InterContinental

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

By analyzing existing cross correlation between PSI Software AG and InterContinental Hotels Group, you can compare the effects of market volatilities on PSI Software and InterContinental 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 PSI Software with a short position of InterContinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI Software and InterContinental.

Diversification Opportunities for PSI Software and InterContinental

0.03

Correlation Coefficient

PSI Software  InterContinental

Significant diversification

The 3 months correlation between PSI and InterContinental is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding PSI Software AG and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels and PSI 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 PSI Software AG are associated (or correlated) with InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of PSI Software i.e., PSI Software and InterContinental go up and down completely randomly.

Pair Corralation between PSI Software and InterContinental

Assuming the 90 days trading horizon PSI Software is expected to generate 7.98 times less return on investment than InterContinental. In addition to that, PSI Software is 1.64 times more volatile than InterContinental Hotels Group. It trades about 0.01 of its total potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.11 per unit of volatility. If you would invest  5,571  in InterContinental Hotels Group on September 3, 2024 and sell it today you would earn a total of  6,229  from holding InterContinental Hotels Group or generate 111.81% return on investment over 90 days.

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

PSI Software AG  vs.  InterContinental Hotels Group

PSI Software AG

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PSI Software AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, PSI Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

InterContinental Hotels

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PSI Software and InterContinental

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

The idea behind PSI Software AG and InterContinental Hotels Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.