Correlation Between Softronic and Proact IT

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

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

Diversification Opportunities for Softronic and Proact IT

-0.87

Correlation Coefficient

Softronic  Proact IT

Pay attention - limited upside

The 3 months correlation between Softronic and Proact is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Softronic AB and Proact IT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proact IT Group and Softronic 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 Softronic AB are associated (or correlated) with Proact IT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proact IT Group has no effect on the direction of Softronic i.e., Softronic and Proact IT go up and down completely randomly.

Pair Corralation between Softronic and Proact IT

Assuming the 90 days trading horizon Softronic AB is expected to generate 0.9 times more return on investment than Proact IT. However, Softronic AB is 1.12 times less risky than Proact IT. It trades about 0.1 of its potential returns per unit of risk. Proact IT Group is currently generating about -0.15 per unit of risk. If you would invest  2,245  in Softronic AB on September 2, 2024 and sell it today you would earn a total of  190.00  from holding Softronic AB or generate 8.46% return on investment over 90 days.

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

Softronic AB  vs.  Proact IT Group

Softronic AB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Softronic AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Softronic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Proact IT Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Proact IT Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Softronic and Proact IT

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

The idea behind Softronic AB and Proact IT Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.