Correlation Between Wipro Limited and Capgemini

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

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

Diversification Opportunities for Wipro Limited and Capgemini

0.79

Correlation Coefficient

Wipro Limited  Capgemini

Poor diversification

The 3 months correlation between Wipro and Capgemini is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Wipro Limited ADR and Capgemini SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capgemini SE ADR and Wipro Limited 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 Wipro Limited ADR are associated (or correlated) with Capgemini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capgemini SE ADR has no effect on the direction of Wipro Limited i.e., Wipro Limited and Capgemini go up and down completely randomly.

Pair Corralation between Wipro Limited and Capgemini

Considering the 90-day investment horizon Wipro Limited ADR is expected to under-perform the Capgemini. But the stock apears to be less risky and, when comparing its historical volatility, Wipro Limited ADR is 1.3 times less risky than Capgemini. The stock trades about -0.09 of its potential returns per unit of risk. The Capgemini SE ADR is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,227  in Capgemini SE ADR on December 29, 2024 and sell it today you would lose (86.00) from holding Capgemini SE ADR or give up 2.67% of portfolio value over 90 days.

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

Wipro Limited ADR  vs.  Capgemini SE ADR

Wipro Limited ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wipro Limited ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Capgemini SE ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capgemini SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Capgemini is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wipro Limited and Capgemini

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

The idea behind Wipro Limited ADR and Capgemini SE ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.