Correlation Between Genpact and Formula Systems

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

By analyzing existing cross correlation between Genpact Limited and Formula Systems 1985, you can compare the effects of market volatilities on Genpact and Formula Systems 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 Genpact with a short position of Formula Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Genpact and Formula Systems.

Diversification Opportunities for Genpact and Formula Systems

-0.71

Correlation Coefficient

Genpact  Formula Systems

Pay attention - limited upside

The 3 months correlation between Genpact and Formula is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Genpact Limited and Formula Systems 1985 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formula Systems 1985 and Genpact 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 Genpact Limited are associated (or correlated) with Formula Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formula Systems 1985 has no effect on the direction of Genpact i.e., Genpact and Formula Systems go up and down completely randomly.

Pair Corralation between Genpact and Formula Systems

Taking into account the 90-day investment horizon Genpact Limited is expected to generate 0.55 times more return on investment than Formula Systems. However, Genpact Limited is 1.83 times less risky than Formula Systems. It trades about -0.06 of its potential returns per unit of risk. Formula Systems 1985 is currently generating about -0.2 per unit of risk. If you would invest  3,231  in Genpact Limited on January 26, 2024 and sell it today you would lose (55.00) from holding Genpact Limited or give up 1.7% of portfolio value over 90 days.

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

Genpact Limited  vs.  Formula Systems 1985

Genpact Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genpact Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Formula Systems 1985

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Formula Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Genpact and Formula Systems

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

The idea behind Genpact Limited and Formula Systems 1985 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.