Correlation Between Software Circle and Croda International

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

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

Diversification Opportunities for Software Circle and Croda International

0.61

Correlation Coefficient

Software Circle  Croda International

Poor diversification

The 3 months correlation between Software and Croda is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Software Circle plc and Croda International Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Croda International Plc and Software Circle 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 Software Circle plc are associated (or correlated) with Croda International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Croda International Plc has no effect on the direction of Software Circle i.e., Software Circle and Croda International go up and down completely randomly.

Pair Corralation between Software Circle and Croda International

Assuming the 90 days trading horizon Software Circle is expected to generate 202.67 times less return on investment than Croda International. But when comparing it to its historical volatility, Software Circle plc is 58.18 times less risky than Croda International. It trades about 0.04 of its potential returns per unit of risk. Croda International Plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  83.00  in Croda International Plc on April 20, 2025 and sell it today you would earn a total of  8,667  from holding Croda International Plc or generate 10442.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Software Circle plc  vs.  Croda International Plc

Software Circle plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Software Circle plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Software Circle is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Croda International Plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Croda International Plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Croda International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Software Circle and Croda International

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

The idea behind Software Circle plc and Croda International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.