Correlation Between CSL and Synopsys

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Can any of the company-specific risk be diversified away by investing in both CSL and Synopsys 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 CSL and Synopsys into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSL Limited and Synopsys, you can compare the effects of market volatilities on CSL and Synopsys 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 CSL with a short position of Synopsys. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSL and Synopsys.

Diversification Opportunities for CSL and Synopsys

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between CSL and Synopsys is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CSL Limited and Synopsys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synopsys and CSL 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 CSL Limited are associated (or correlated) with Synopsys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synopsys has no effect on the direction of CSL i.e., CSL and Synopsys go up and down completely randomly.

Pair Corralation between CSL and Synopsys

Assuming the 90 days horizon CSL is expected to generate 1.23 times less return on investment than Synopsys. But when comparing it to its historical volatility, CSL Limited is 1.42 times less risky than Synopsys. It trades about 0.28 of its potential returns per unit of risk. Synopsys is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  28,053  in Synopsys on September 8, 2022 and sell it today you would earn a total of  4,749  from holding Synopsys or generate 16.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

CSL Limited  vs.  Synopsys

 Performance (%) 
       Timeline  
CSL Limited 
CSL Performance
0 of 100
Over the last 90 days CSL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, CSL is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

CSL Price Channel

Synopsys 
Synopsys Performance
0 of 100
Over the last 90 days Synopsys has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Synopsys is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Synopsys Price Channel

CSL and Synopsys Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CSL and Synopsys

The main advantage of trading using opposite CSL and Synopsys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSL position performs unexpectedly, Synopsys 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 Synopsys will offset losses from the drop in Synopsys' long position.
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The idea behind CSL Limited and Synopsys 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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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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