Correlation Between Square and Salesforce
Can any of the company-specific risk be diversified away by investing in both Square 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 Square and Salesforce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Square Inc and Salesforce, you can compare the effects of market volatilities on Square 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 Square with a short position of Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Square and Salesforce.
Diversification Opportunities for Square and Salesforce
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Square and Salesforce is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Square Inc and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce and Square 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 Square Inc 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 Square i.e., Square and Salesforce go up and down completely randomly.
Pair Corralation between Square and Salesforce
Assuming the 90 days horizon Square Inc is expected to generate 1.34 times more return on investment than Salesforce. However, Square is 1.34 times more volatile than Salesforce. It trades about 0.25 of its potential returns per unit of risk. Salesforce is currently generating about 0.2 per unit of risk. If you would invest 6,789 in Square Inc on August 30, 2024 and sell it today you would earn a total of 1,606 from holding Square Inc or generate 23.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Square Inc vs. Salesforce
Performance |
| Timeline |
| Square Inc |
| Salesforce |
Square and Salesforce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Square and Salesforce
The main advantage of trading using opposite Square and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Square 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 Square Inc 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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