Correlation Between PSI Software and Linde Plc

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Can any of the company-specific risk be diversified away by investing in both PSI Software and Linde Plc 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 PSI Software and Linde Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PSI Software AG and Linde plc, you can compare the effects of market volatilities on PSI Software and Linde Plc 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 PSI Software with a short position of Linde Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI Software and Linde Plc.

Diversification Opportunities for PSI Software and Linde Plc

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between PSI and Linde is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding PSI Software AG and Linde plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linde plc and PSI Software 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 PSI Software AG are associated (or correlated) with Linde Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linde plc has no effect on the direction of PSI Software i.e., PSI Software and Linde Plc go up and down completely randomly.

Pair Corralation between PSI Software and Linde Plc

Assuming the 90 days trading horizon PSI Software AG is expected to under-perform the Linde Plc. In addition to that, PSI Software is 2.08 times more volatile than Linde plc. It trades about -0.02 of its total potential returns per unit of risk. Linde plc is currently generating about 0.06 per unit of volatility. If you would invest  37,134  in Linde plc on September 14, 2024 and sell it today you would earn a total of  4,926  from holding Linde plc or generate 13.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

PSI Software AG  vs.  Linde plc

 Performance 
       Timeline  
PSI Software AG 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Linde plc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Linde plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Linde Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PSI Software and Linde Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PSI Software and Linde Plc

The main advantage of trading using opposite PSI Software and Linde Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSI Software position performs unexpectedly, Linde Plc 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 Linde Plc will offset losses from the drop in Linde Plc's long position.
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The idea behind PSI Software AG and Linde plc 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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