Correlation Between REC and California Software

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

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

Diversification Opportunities for REC and California Software

-0.41

Correlation Coefficient

REC  California Software

Very good diversification

The 3 months correlation between REC and California is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding REC Limited and California Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Software and REC 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 REC Limited are associated (or correlated) with California Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Software has no effect on the direction of REC i.e., REC and California Software go up and down completely randomly.

Pair Corralation between REC and California Software

Assuming the 90 days trading horizon REC Limited is expected to under-perform the California Software. But the stock apears to be less risky and, when comparing its historical volatility, REC Limited is 1.74 times less risky than California Software. The stock trades about -0.05 of its potential returns per unit of risk. The California Software is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,126  in California Software on May 5, 2025 and sell it today you would earn a total of  297.00  from holding California Software or generate 26.38% return on investment over 90 days.

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

REC Limited  vs.  California Software

REC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days REC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, REC is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

California Software

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in California Software are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, California Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with REC and California Software

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

The idea behind REC Limited and California Software 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .