Correlation Between CU Tech and DRGEM

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

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

Diversification Opportunities for CU Tech and DRGEM

0.69

Correlation Coefficient

CU Tech  DRGEM

Poor diversification

The 3 months correlation between 376290 and DRGEM is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding CU Tech Corp and DRGEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRGEM and CU Tech 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 CU Tech Corp are associated (or correlated) with DRGEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRGEM has no effect on the direction of CU Tech i.e., CU Tech and DRGEM go up and down completely randomly.

Pair Corralation between CU Tech and DRGEM

Assuming the 90 days trading horizon CU Tech Corp is expected to generate 0.57 times more return on investment than DRGEM. However, CU Tech Corp is 1.75 times less risky than DRGEM. It trades about -0.05 of its potential returns per unit of risk. DRGEM is currently generating about -0.11 per unit of risk. If you would invest  312,000  in CU Tech Corp on October 24, 2024 and sell it today you would lose (14,500) from holding CU Tech Corp or give up 4.65% of portfolio value over 90 days.

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

CU Tech Corp  vs.  DRGEM

CU Tech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

DRGEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRGEM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with CU Tech and DRGEM

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

The idea behind CU Tech Corp and DRGEM 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.