Correlation Between DB Insurance and Wave Electronics

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

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

Diversification Opportunities for DB Insurance and Wave Electronics

-0.43

Correlation Coefficient

DB Insurance  Wave Electronics

Very good diversification

The 3 months correlation between 005830 and Wave is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding DB Insurance Co and Wave Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Electronics and DB Insurance 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 DB Insurance Co are associated (or correlated) with Wave Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Electronics has no effect on the direction of DB Insurance i.e., DB Insurance and Wave Electronics go up and down completely randomly.

Pair Corralation between DB Insurance and Wave Electronics

Assuming the 90 days trading horizon DB Insurance Co is expected to under-perform the Wave Electronics. But the stock apears to be less risky and, when comparing its historical volatility, DB Insurance Co is 1.55 times less risky than Wave Electronics. The stock trades about -0.05 of its potential returns per unit of risk. The Wave Electronics Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  387,000  in Wave Electronics Co on December 22, 2024 and sell it today you would earn a total of  53,000  from holding Wave Electronics Co or generate 13.7% return on investment over 90 days.

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

DB Insurance Co  vs.  Wave Electronics Co

DB Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days DB Insurance Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Wave Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wave Electronics Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wave Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DB Insurance and Wave Electronics

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

The idea behind DB Insurance Co and Wave Electronics Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.