Correlation Between D Link and CMC Magnetics

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

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

Diversification Opportunities for D Link and CMC Magnetics

-0.34

Correlation Coefficient

D Link  CMC Magnetics

Very good diversification

The 3 months correlation between 2332 and CMC is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding D Link Corp and CMC Magnetics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Magnetics Corp and D Link 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 D Link Corp are associated (or correlated) with CMC Magnetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Magnetics Corp has no effect on the direction of D Link i.e., D Link and CMC Magnetics go up and down completely randomly.

Pair Corralation between D Link and CMC Magnetics

Assuming the 90 days trading horizon D Link Corp is expected to generate 2.29 times more return on investment than CMC Magnetics. However, D Link is 2.29 times more volatile than CMC Magnetics Corp. It trades about -0.02 of its potential returns per unit of risk. CMC Magnetics Corp is currently generating about -0.13 per unit of risk. If you would invest  2,200  in D Link Corp on December 5, 2024 and sell it today you would lose (150.00) from holding D Link Corp or give up 6.82% of portfolio value over 90 days.

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

D Link Corp  vs.  CMC Magnetics Corp

D Link Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days D Link Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, D Link is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CMC Magnetics Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CMC Magnetics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with D Link and CMC Magnetics

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

The idea behind D Link Corp and CMC Magnetics Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.