Correlation Between MDC Holdings and Salesforce

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

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

Diversification Opportunities for MDC Holdings and Salesforce

0.3

Correlation Coefficient

MDC Holdings  Salesforce

Weak diversification

The 3 months correlation between MDC and Salesforce is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce and MDC Holdings 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 MDC Holdings are associated (or correlated) with Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of MDC Holdings i.e., MDC Holdings and Salesforce go up and down completely randomly.

Pair Corralation between MDC Holdings and Salesforce

Considering the 90-day investment horizon MDC Holdings is expected to generate 1.0 times more return on investment than Salesforce. However, MDC Holdings is 1.0 times more volatile than Salesforce. It trades about 0.06 of its potential returns per unit of risk. Salesforce is currently generating about 0.05 per unit of risk. If you would invest  3,646  in MDC Holdings on January 24, 2024 and sell it today you would earn a total of  2,652  from holding MDC Holdings or generate 72.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

MDC Holdings  vs.  Salesforce

MDC Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MDC Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MDC Holdings and Salesforce

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

The idea behind MDC Holdings and Salesforce 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.