Correlation Between Software And and Defense

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

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

Diversification Opportunities for Software And and Defense

0.94

Correlation Coefficient

Software And  Defense

Almost no diversification

The 3 months correlation between Software and Defense is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Software And It and Defense And Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense And Aerospace and Software And 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 And It are associated (or correlated) with Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense And Aerospace has no effect on the direction of Software And i.e., Software And and Defense go up and down completely randomly.

Pair Corralation between Software And and Defense

Assuming the 90 days horizon Software And is expected to generate 1.32 times less return on investment than Defense. In addition to that, Software And is 1.23 times more volatile than Defense And Aerospace. It trades about 0.27 of its total potential returns per unit of risk. Defense And Aerospace is currently generating about 0.43 per unit of volatility. If you would invest  1,945  in Defense And Aerospace on April 29, 2025 and sell it today you would earn a total of  507.00  from holding Defense And Aerospace or generate 26.07% return on investment over 90 days.

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

Software And It  vs.  Defense And Aerospace

Software And It

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Software And It are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Software And showed solid returns over the last few months and may actually be approaching a breakup point.

Defense And Aerospace

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Defense And Aerospace are ranked lower than 33 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Defense showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Software And and Defense

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

The idea behind Software And It and Defense And Aerospace 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.