Correlation Between Stic Investments and DSC Investment

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

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

Diversification Opportunities for Stic Investments and DSC Investment

0.72

Correlation Coefficient

Stic Investments  DSC Investment

Poor diversification

The 3 months correlation between Stic and DSC is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stic Investments and DSC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DSC Investment and Stic Investments 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 Stic Investments are associated (or correlated) with DSC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DSC Investment has no effect on the direction of Stic Investments i.e., Stic Investments and DSC Investment go up and down completely randomly.

Pair Corralation between Stic Investments and DSC Investment

Assuming the 90 days trading horizon Stic Investments is expected to generate 2.44 times less return on investment than DSC Investment. But when comparing it to its historical volatility, Stic Investments is 1.34 times less risky than DSC Investment. It trades about 0.13 of its potential returns per unit of risk. DSC Investment is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  259,422  in DSC Investment on October 8, 2024 and sell it today you would earn a total of  28,078  from holding DSC Investment or generate 10.82% return on investment over 90 days.

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

Stic Investments  vs.  DSC Investment

Stic Investments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stic Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Stic Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

DSC Investment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DSC Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DSC Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stic Investments and DSC Investment

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

The idea behind Stic Investments and DSC Investment 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.