Correlation Between Software Circle and JD Sports

Can any of the company-specific risk be diversified away by investing in both Software Circle and JD Sports 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 JD Sports 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 JD Sports Fashion, you can compare the effects of market volatilities on Software Circle and JD Sports 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 JD Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Software Circle and JD Sports.

Diversification Opportunities for Software Circle and JD Sports

0.31

Correlation Coefficient

Software Circle  JD Sports

Weak diversification

The 3 months correlation between Software and JD Sports is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Software Circle plc and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Software Circle i.e., Software Circle and JD Sports go up and down completely randomly.

Pair Corralation between Software Circle and JD Sports

Assuming the 90 days trading horizon Software Circle plc is expected to generate 0.58 times more return on investment than JD Sports. However, Software Circle plc is 1.74 times less risky than JD Sports. It trades about 0.11 of its potential returns per unit of risk. JD Sports Fashion is currently generating about 0.01 per unit of risk. If you would invest  1,700  in Software Circle plc on April 22, 2025 and sell it today you would earn a total of  1,200  from holding Software Circle plc or generate 70.59% return on investment over 90 days.

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

Software Circle plc  vs.  JD Sports Fashion

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

JD Sports Fashion

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JD Sports Fashion are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, JD Sports exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Software Circle and JD Sports

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

The idea behind Software Circle plc and JD Sports Fashion 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.