Correlation Between AMS Small and DGB Group

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

By analyzing existing cross correlation between AMS Small Cap and DGB Group NV, you can compare the effects of market volatilities on AMS Small and DGB Group 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 AMS Small with a short position of DGB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and DGB Group.

Diversification Opportunities for AMS Small and DGB Group

-0.11

Correlation Coefficient

AMS Small  DGB Group

Good diversification

The 3 months correlation between AMS and DGB is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and DGB Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB Group NV and AMS Small 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 AMS Small Cap are associated (or correlated) with DGB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB Group NV has no effect on the direction of AMS Small i.e., AMS Small and DGB Group go up and down completely randomly.

Pair Corralation between AMS Small and DGB Group

Assuming the 90 days trading horizon AMS Small is expected to generate 4.27 times less return on investment than DGB Group. But when comparing it to its historical volatility, AMS Small Cap is 2.3 times less risky than DGB Group. It trades about 0.21 of its potential returns per unit of risk. DGB Group NV is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  75.00  in DGB Group NV on September 17, 2024 and sell it today you would earn a total of  15.00  from holding DGB Group NV or generate 20.0% return on investment over 90 days.

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

AMS Small Cap  vs.  DGB Group NV

Pair Trading with AMS Small and DGB Group

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

The idea behind AMS Small Cap and DGB Group NV 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.