Correlation Between Software Circle and Knights Group

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

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

Diversification Opportunities for Software Circle and Knights Group

0.76

Correlation Coefficient

Software Circle  Knights Group

Poor diversification

The 3 months correlation between Software and Knights is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Software Circle plc and Knights Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knights Group Holdings and Software Circle 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 Software Circle plc are associated (or correlated) with Knights Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knights Group Holdings has no effect on the direction of Software Circle i.e., Software Circle and Knights Group go up and down completely randomly.

Pair Corralation between Software Circle and Knights Group

Assuming the 90 days trading horizon Software Circle plc is expected to generate 1.14 times more return on investment than Knights Group. However, Software Circle is 1.14 times more volatile than Knights Group Holdings. It trades about 0.22 of its potential returns per unit of risk. Knights Group Holdings is currently generating about 0.23 per unit of risk. If you would invest  2,300  in Software Circle plc on December 24, 2024 and sell it today you would earn a total of  700.00  from holding Software Circle plc or generate 30.43% return on investment over 90 days.

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

Software Circle plc  vs.  Knights Group Holdings

Software Circle plc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Software Circle plc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Software Circle exhibited solid returns over the last few months and may actually be approaching a breakup point.

Knights Group Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Knights Group Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Knights Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Software Circle and Knights Group

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

The idea behind Software Circle plc and Knights Group Holdings 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 Stocks Directory module to find actively traded stocks across global markets.