Correlation Between PSI Software and Northern Star

Can any of the company-specific risk be diversified away by investing in both PSI Software and Northern Star 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 Northern Star 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 Northern Star Resources, you can compare the effects of market volatilities on PSI Software and Northern Star 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 Northern Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI Software and Northern Star.

Diversification Opportunities for PSI Software and Northern Star

0.08

Correlation Coefficient

PSI Software  Northern Star

Significant diversification

The 3 months correlation between PSI and Northern is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding PSI Software AG and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of PSI Software i.e., PSI Software and Northern Star go up and down completely randomly.

Pair Corralation between PSI Software and Northern Star

Assuming the 90 days trading horizon PSI Software AG is expected to generate 0.51 times more return on investment than Northern Star. However, PSI Software AG is 1.96 times less risky than Northern Star. It trades about -0.1 of its potential returns per unit of risk. Northern Star Resources is currently generating about -0.17 per unit of risk. If you would invest  2,130  in PSI Software AG on September 20, 2024 and sell it today you would lose (50.00) from holding PSI Software AG or give up 2.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

PSI Software AG  vs.  Northern Star Resources

PSI Software AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Northern Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PSI Software and Northern Star

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

The idea behind PSI Software AG and Northern Star Resources 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.