Can any of the company-specific risk be diversified away by investing in both Salesforce and Neste Oil 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 Salesforce and Neste Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Salesforce and Neste Oil Oyj, you can compare the effects of market volatilities on Salesforce and Neste Oil 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 Salesforce with a short position of Neste Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salesforce and Neste Oil.
Diversification Opportunities for Salesforce and Neste Oil
The 3 months correlation between Salesforce and Neste is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil Oyj and Salesforce 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 Salesforce are associated (or correlated) with Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of Salesforce i.e., Salesforce and Neste Oil go up and down completely randomly.
Considering the 90-day investment horizon Salesforce is expected to generate 1.3 times more return on investment than Neste Oil. However, Salesforce is 1.3 times more volatile than Neste Oil Oyj. It trades about -0.12 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.21 per unit of risk. If you would invest 27,563 in Salesforce on March 6, 2024 and sell it today you would lose (3,901) from holding Salesforce or give up 14.15% of portfolio value over 90 days.
Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.
Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.