Correlation Between Xero and Salesforce

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

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

Diversification Opportunities for Xero and Salesforce

0.81

Correlation Coefficient

Xero  Salesforce

Very poor diversification

The 3 months correlation between Xero and Salesforce is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Xero Limited and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce and Xero 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 Xero Limited are associated (or correlated) with Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Xero i.e., Xero and Salesforce go up and down completely randomly.

Pair Corralation between Xero and Salesforce

Assuming the 90 days horizon Xero Limited is expected to generate 0.43 times more return on investment than Salesforce. However, Xero Limited is 2.31 times less risky than Salesforce. It trades about 0.41 of its potential returns per unit of risk. Salesforce is currently generating about 0.09 per unit of risk. If you would invest  10,220  in Xero Limited on September 13, 2024 and sell it today you would earn a total of  1,147  from holding Xero Limited or generate 11.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Xero Limited  vs.  Salesforce

Xero Limited

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xero Limited are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Xero reported solid returns over the last few months and may actually be approaching a breakup point.

Salesforce

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xero and Salesforce

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

The idea behind Xero Limited and Salesforce 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.