Correlation Between Dragonfly and Daishin Balance

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

By analyzing existing cross correlation between Dragonfly GF Co and Daishin Balance No8, you can compare the effects of market volatilities on Dragonfly and Daishin Balance 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 Dragonfly with a short position of Daishin Balance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dragonfly and Daishin Balance.

Diversification Opportunities for Dragonfly and Daishin Balance

0.3

Correlation Coefficient

Dragonfly  Daishin Balance

Weak diversification

The 3 months correlation between Dragonfly and Daishin is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dragonfly GF Co and Daishin Balance No8 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daishin Balance No8 and Dragonfly 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 Dragonfly GF Co are associated (or correlated) with Daishin Balance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daishin Balance No8 has no effect on the direction of Dragonfly i.e., Dragonfly and Daishin Balance go up and down completely randomly.

Pair Corralation between Dragonfly and Daishin Balance

Assuming the 90 days trading horizon Dragonfly is expected to generate 4.21 times less return on investment than Daishin Balance. In addition to that, Dragonfly is 2.23 times more volatile than Daishin Balance No8. It trades about 0.04 of its total potential returns per unit of risk. Daishin Balance No8 is currently generating about 0.35 per unit of volatility. If you would invest  445,000  in Daishin Balance No8 on October 23, 2024 and sell it today you would earn a total of  126,000  from holding Daishin Balance No8 or generate 28.31% return on investment over 90 days.

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

Dragonfly GF Co  vs.  Daishin Balance No8

Dragonfly GF

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dragonfly GF Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dragonfly sustained solid returns over the last few months and may actually be approaching a breakup point.

Daishin Balance No8

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daishin Balance No8 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Daishin Balance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dragonfly and Daishin Balance

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

The idea behind Dragonfly GF Co and Daishin Balance No8 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.