Correlation Between DR and Farsoon Technology

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

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

Diversification Opportunities for DR and Farsoon Technology

0.7

Correlation Coefficient

DR  Farsoon Technology

Poor diversification

The 3 months correlation between DR and Farsoon is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding DR Limited and Farsoon Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farsoon Technology and DR 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 DR Limited are associated (or correlated) with Farsoon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farsoon Technology has no effect on the direction of DR i.e., DR and Farsoon Technology go up and down completely randomly.

Pair Corralation between DR and Farsoon Technology

Assuming the 90 days trading horizon DR is expected to generate 3.25 times less return on investment than Farsoon Technology. But when comparing it to its historical volatility, DR Limited is 1.52 times less risky than Farsoon Technology. It trades about 0.12 of its potential returns per unit of risk. Farsoon Technology Co is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,014  in Farsoon Technology Co on December 25, 2024 and sell it today you would earn a total of  1,908  from holding Farsoon Technology Co or generate 94.74% return on investment over 90 days.

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

DR Limited  vs.  Farsoon Technology Co

DR Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DR Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DR sustained solid returns over the last few months and may actually be approaching a breakup point.

Farsoon Technology

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Farsoon Technology Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Farsoon Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DR and Farsoon Technology

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

The idea behind DR Limited and Farsoon Technology 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.