Correlation Between Microfriend and Daou Technology

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

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

Diversification Opportunities for Microfriend and Daou Technology

0.52

Correlation Coefficient

Microfriend  Daou Technology

Very weak diversification

The 3 months correlation between Microfriend and Daou is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Daou Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daou Technology and Microfriend 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 Microfriend are associated (or correlated) with Daou Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daou Technology has no effect on the direction of Microfriend i.e., Microfriend and Daou Technology go up and down completely randomly.

Pair Corralation between Microfriend and Daou Technology

Assuming the 90 days trading horizon Microfriend is expected to generate 4.2 times less return on investment than Daou Technology. In addition to that, Microfriend is 8.04 times more volatile than Daou Technology. It trades about 0.0 of its total potential returns per unit of risk. Daou Technology is currently generating about 0.13 per unit of volatility. If you would invest  1,772,000  in Daou Technology on September 5, 2024 and sell it today you would earn a total of  106,000  from holding Daou Technology or generate 5.98% return on investment over 90 days.

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

Microfriend  vs.  Daou Technology

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daou Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daou Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daou Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Microfriend and Daou Technology

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

The idea behind Microfriend and Daou Technology 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .