Correlation Between Model N and PROS Holdings

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

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

Diversification Opportunities for Model N and PROS Holdings

-0.45

Correlation Coefficient

Model N  PROS Holdings

Very good diversification

The 3 months correlation between Model and PROS is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Model N and PROS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROS Holdings and Model N 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 Model N are associated (or correlated) with PROS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PROS Holdings has no effect on the direction of Model N i.e., Model N and PROS Holdings go up and down completely randomly.

Pair Corralation between Model N and PROS Holdings

Given the investment horizon of 90 days Model N is expected to under-perform the PROS Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Model N is 1.11 times less risky than PROS Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The PROS Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,418  in PROS Holdings on February 14, 2024 and sell it today you would earn a total of  645.00  from holding PROS Holdings or generate 26.67% return on investment over 90 days.

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

Model N  vs.  PROS Holdings

Model N

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Model N are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Model N may actually be approaching a critical reversion point that can send shares even higher in June 2024.

PROS Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PROS Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Model N and PROS Holdings

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

The idea behind Model N and PROS Holdings 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.