Correlation Between Fine Besteel and DRGEM

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

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

Diversification Opportunities for Fine Besteel and DRGEM

-0.07

Correlation Coefficient

Fine Besteel  DRGEM

Good diversification

The 3 months correlation between Fine and DRGEM is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Fine Besteel Co and DRGEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRGEM and Fine Besteel 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 Fine Besteel Co are associated (or correlated) with DRGEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRGEM has no effect on the direction of Fine Besteel i.e., Fine Besteel and DRGEM go up and down completely randomly.

Pair Corralation between Fine Besteel and DRGEM

Assuming the 90 days trading horizon Fine Besteel Co is expected to generate 1.98 times more return on investment than DRGEM. However, Fine Besteel is 1.98 times more volatile than DRGEM. It trades about 0.03 of its potential returns per unit of risk. DRGEM is currently generating about -0.02 per unit of risk. If you would invest  98,500  in Fine Besteel Co on December 24, 2024 and sell it today you would earn a total of  1,900  from holding Fine Besteel Co or generate 1.93% return on investment over 90 days.

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

Fine Besteel Co  vs.  DRGEM

Fine Besteel

Risk-Adjusted Performance

Weak

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

DRGEM

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fine Besteel and DRGEM

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

The idea behind Fine Besteel Co and DRGEM 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.