Correlation Between Hurum and Dragonfly

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

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

Diversification Opportunities for Hurum and Dragonfly

0.52

Correlation Coefficient

Hurum  Dragonfly

Very weak diversification

The 3 months correlation between Hurum and Dragonfly is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Hurum Co and Dragonfly GF Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dragonfly GF and Hurum 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 Hurum Co are associated (or correlated) with Dragonfly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dragonfly GF has no effect on the direction of Hurum i.e., Hurum and Dragonfly go up and down completely randomly.

Pair Corralation between Hurum and Dragonfly

Assuming the 90 days trading horizon Hurum Co is expected to under-perform the Dragonfly. But the stock apears to be less risky and, when comparing its historical volatility, Hurum Co is 3.14 times less risky than Dragonfly. The stock trades about -0.08 of its potential returns per unit of risk. The Dragonfly GF Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  129,500  in Dragonfly GF Co on October 8, 2024 and sell it today you would lose (100.00) from holding Dragonfly GF Co or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	75.41%
Values	Daily Returns

Hurum Co  vs.  Dragonfly GF Co

Hurum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hurum 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.

Dragonfly GF

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dragonfly GF Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dragonfly sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hurum and Dragonfly

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

The idea behind Hurum Co and Dragonfly GF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.