Correlation Between DAEMO Engineering and Formetal

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

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

Diversification Opportunities for DAEMO Engineering and Formetal

-0.01

Correlation Coefficient

DAEMO Engineering  Formetal

Good diversification

The 3 months correlation between DAEMO and Formetal is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding DAEMO Engineering Co and Formetal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formetal and DAEMO Engineering 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 DAEMO Engineering Co are associated (or correlated) with Formetal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formetal has no effect on the direction of DAEMO Engineering i.e., DAEMO Engineering and Formetal go up and down completely randomly.

Pair Corralation between DAEMO Engineering and Formetal

Assuming the 90 days trading horizon DAEMO Engineering Co is expected to generate 2.57 times more return on investment than Formetal. However, DAEMO Engineering is 2.57 times more volatile than Formetal Co. It trades about 0.01 of its potential returns per unit of risk. Formetal Co is currently generating about -0.06 per unit of risk. If you would invest  967,000  in DAEMO Engineering Co on September 2, 2024 and sell it today you would lose (27,000) from holding DAEMO Engineering Co or give up 2.79% of portfolio value over 90 days.

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

DAEMO Engineering Co  vs.  Formetal Co

DAEMO Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

Formetal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formetal Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with DAEMO Engineering and Formetal

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

The idea behind DAEMO Engineering Co and Formetal 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.