Correlation Between HuMC and DreamCIS

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

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

Diversification Opportunities for HuMC and DreamCIS

0.2

Correlation Coefficient

HuMC  DreamCIS

Modest diversification

The 3 months correlation between HuMC and DreamCIS is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding HuMC Co and DreamCIS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DreamCIS and HuMC 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 HuMC Co are associated (or correlated) with DreamCIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DreamCIS has no effect on the direction of HuMC i.e., HuMC and DreamCIS go up and down completely randomly.

Pair Corralation between HuMC and DreamCIS

Assuming the 90 days trading horizon HuMC is expected to generate 1.7 times less return on investment than DreamCIS. But when comparing it to its historical volatility, HuMC Co is 1.76 times less risky than DreamCIS. It trades about 0.03 of its potential returns per unit of risk. DreamCIS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  295,000  in DreamCIS on December 4, 2024 and sell it today you would earn a total of  6,500  from holding DreamCIS or generate 2.2% return on investment over 90 days.

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

HuMC Co  vs.  DreamCIS

HuMC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HuMC Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HuMC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DreamCIS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DreamCIS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DreamCIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HuMC and DreamCIS

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

The idea behind HuMC Co and DreamCIS 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .