Correlation Between DSC Investment and Lion Chemtech

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

By analyzing existing cross correlation between DSC Investment and Lion Chemtech Co, you can compare the effects of market volatilities on DSC Investment and Lion Chemtech 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 Lion Chemtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of DSC Investment and Lion Chemtech.

Diversification Opportunities for DSC Investment and Lion Chemtech

-0.55

Correlation Coefficient

DSC Investment  Lion Chemtech

Excellent diversification

The 3 months correlation between DSC and Lion is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding DSC Investment and Lion Chemtech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Chemtech 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 Lion Chemtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Chemtech has no effect on the direction of DSC Investment i.e., DSC Investment and Lion Chemtech go up and down completely randomly.

Pair Corralation between DSC Investment and Lion Chemtech

Assuming the 90 days trading horizon DSC Investment is expected to generate 4.44 times more return on investment than Lion Chemtech. However, DSC Investment is 4.44 times more volatile than Lion Chemtech Co. It trades about 0.13 of its potential returns per unit of risk. Lion Chemtech Co is currently generating about -0.06 per unit of risk. If you would invest  288,000  in DSC Investment on December 30, 2024 and sell it today you would earn a total of  144,500  from holding DSC Investment or generate 50.17% return on investment over 90 days.

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

DSC Investment  vs.  Lion Chemtech Co

DSC Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DSC Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DSC Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Lion Chemtech

Risk-Adjusted Performance

Very Weak

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

Pair Trading with DSC Investment and Lion Chemtech

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

The idea behind DSC Investment and Lion Chemtech Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.