Correlation Between Software Circle and Polar Capital

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

Diversification Opportunities for Software Circle and Polar Capital

-0.15

Correlation Coefficient

Software Circle  Polar Capital

Good diversification

The 3 months correlation between Software and Polar is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Software Circle plc and Polar Capital Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polar Capital Technology 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 Polar Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polar Capital Technology has no effect on the direction of Software Circle i.e., Software Circle and Polar Capital go up and down completely randomly.

Pair Corralation between Software Circle and Polar Capital

Assuming the 90 days trading horizon Software Circle plc is expected to generate 1.43 times more return on investment than Polar Capital. However, Software Circle is 1.43 times more volatile than Polar Capital Technology. It trades about 0.12 of its potential returns per unit of risk. Polar Capital Technology is currently generating about 0.1 per unit of risk. If you would invest  1,400  in Software Circle plc on October 9, 2024 and sell it today you would earn a total of  950.00  from holding Software Circle plc or generate 67.86% return on investment over 90 days.

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

Software Circle plc  vs.  Polar Capital Technology

Software Circle plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Software Circle plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Software Circle may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Polar Capital Technology

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Software Circle and Polar Capital

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

The idea behind Software Circle plc and Polar Capital Technology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.