Correlation Between Solutions and Sword Group

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

By analyzing existing cross correlation between Solutions 30 SE and Sword Group SE, you can compare the effects of market volatilities on Solutions and Sword Group 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 Solutions with a short position of Sword Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solutions and Sword Group.

Diversification Opportunities for Solutions and Sword Group

-0.56

Correlation Coefficient

Solutions  Sword Group

Excellent diversification

The 3 months correlation between Solutions and Sword is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Solutions 30 SE and Sword Group SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sword Group SE and Solutions 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 Solutions 30 SE are associated (or correlated) with Sword Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sword Group SE has no effect on the direction of Solutions i.e., Solutions and Sword Group go up and down completely randomly.

Pair Corralation between Solutions and Sword Group

Assuming the 90 days trading horizon Solutions 30 SE is expected to generate 2.44 times more return on investment than Sword Group. However, Solutions is 2.44 times more volatile than Sword Group SE. It trades about 0.25 of its potential returns per unit of risk. Sword Group SE is currently generating about -0.06 per unit of risk. If you would invest  84.00  in Solutions 30 SE on December 4, 2024 and sell it today you would earn a total of  49.00  from holding Solutions 30 SE or generate 58.33% return on investment over 90 days.

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

Solutions 30 SE  vs.  Sword Group SE

Solutions 30 SE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Solutions 30 SE are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solutions sustained solid returns over the last few months and may actually be approaching a breakup point.

Sword Group SE

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sword Group SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sword Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Solutions and Sword Group

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

The idea behind Solutions 30 SE and Sword Group SE 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.