Correlation Between DSC Investment and SCI Information

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

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

Diversification Opportunities for DSC Investment and SCI Information

0.22

Correlation Coefficient

DSC Investment  SCI Information

Modest diversification

The 3 months correlation between DSC and SCI is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding DSC Investment and SCI Information Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCI Information Service and DSC Investment 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 DSC Investment are associated (or correlated) with SCI Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCI Information Service has no effect on the direction of DSC Investment i.e., DSC Investment and SCI Information go up and down completely randomly.

Pair Corralation between DSC Investment and SCI Information

Assuming the 90 days trading horizon DSC Investment is expected to generate 0.98 times more return on investment than SCI Information. However, DSC Investment is 1.02 times less risky than SCI Information. It trades about 0.06 of its potential returns per unit of risk. SCI Information Service is currently generating about -0.1 per unit of risk. If you would invest  279,000  in DSC Investment on September 19, 2024 and sell it today you would earn a total of  18,500  from holding DSC Investment or generate 6.63% return on investment over 90 days.

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

DSC Investment  vs.  SCI Information Service

DSC Investment

Risk-Adjusted Performance

4 of 100

Insignificant

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

SCI Information Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SCI Information Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with DSC Investment and SCI Information

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

The idea behind DSC Investment and SCI Information Service 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.