Correlation Between Powerschool Holdings and American Software

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

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

Diversification Opportunities for Powerschool Holdings and American Software

0.86

Correlation Coefficient

Powerschool Holdings  American Software

Very poor diversification

The 3 months correlation between Powerschool and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Powerschool Holdings and American Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Software and Powerschool Holdings 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 Powerschool Holdings are associated (or correlated) with American Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Software has no effect on the direction of Powerschool Holdings i.e., Powerschool Holdings and American Software go up and down completely randomly.

Pair Corralation between Powerschool Holdings and American Software

Given the investment horizon of 90 days Powerschool Holdings is expected to generate 0.07 times more return on investment than American Software. However, Powerschool Holdings is 15.25 times less risky than American Software. It trades about 0.36 of its potential returns per unit of risk. American Software is currently generating about -0.15 per unit of risk. If you would invest  2,268  in Powerschool Holdings on September 3, 2024 and sell it today you would earn a total of  13.00  from holding Powerschool Holdings or generate 0.57% return on investment over 90 days.

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

Powerschool Holdings  vs.  American Software

Powerschool Holdings

Risk-Adjusted Performance

0 of 100

Strong

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

American Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Powerschool Holdings and American Software

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

The idea behind Powerschool Holdings and American Software 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.