Correlation Between Xero and Dassault Systemes

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

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

Diversification Opportunities for Xero and Dassault Systemes

0.15

Correlation Coefficient

Xero  Dassault Systemes

Average diversification

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

Pair Corralation between Xero and Dassault Systemes

Assuming the 90 days horizon Xero Limited is expected to generate 0.89 times more return on investment than Dassault Systemes. However, Xero Limited is 1.13 times less risky than Dassault Systemes. It trades about 0.08 of its potential returns per unit of risk. Dassault Systemes SE is currently generating about 0.01 per unit of risk. If you would invest  9,314  in Xero Limited on October 26, 2024 and sell it today you would earn a total of  1,611  from holding Xero Limited or generate 17.3% return on investment over 90 days.

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

Xero Limited  vs.  Dassault Systemes SE

Xero Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xero Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Xero reported solid returns over the last few months and may actually be approaching a breakup point.

Dassault Systemes

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dassault Systemes SE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Dassault Systemes may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xero and Dassault Systemes

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

The idea behind Xero Limited and Dassault Systemes SE 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.