Correlation Between DSC Investment and IQuest

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

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

Diversification Opportunities for DSC Investment and IQuest

0.5

Correlation Coefficient

DSC Investment  IQuest

Very weak diversification

The 3 months correlation between DSC and IQuest is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding DSC Investment and IQuest Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQuest 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 IQuest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQuest has no effect on the direction of DSC Investment i.e., DSC Investment and IQuest go up and down completely randomly.

Pair Corralation between DSC Investment and IQuest

Assuming the 90 days trading horizon DSC Investment is expected to generate 15.81 times less return on investment than IQuest. But when comparing it to its historical volatility, DSC Investment is 1.45 times less risky than IQuest. It trades about 0.01 of its potential returns per unit of risk. IQuest Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  217,365  in IQuest Co on October 25, 2024 and sell it today you would earn a total of  29,135  from holding IQuest Co or generate 13.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

DSC Investment  vs.  IQuest Co

DSC Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

IQuest

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IQuest Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IQuest sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DSC Investment and IQuest

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

The idea behind DSC Investment and IQuest 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.

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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.