Correlation Between CMC Investment and Damsan JSC

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

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

Diversification Opportunities for CMC Investment and Damsan JSC

0.08

Correlation Coefficient

CMC Investment  Damsan JSC

Significant diversification

The 3 months correlation between CMC and Damsan is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding CMC Investment JSC and Damsan JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Damsan JSC and CMC Investment 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 CMC Investment JSC are associated (or correlated) with Damsan JSC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Damsan JSC has no effect on the direction of CMC Investment i.e., CMC Investment and Damsan JSC go up and down completely randomly.

Pair Corralation between CMC Investment and Damsan JSC

Assuming the 90 days trading horizon CMC Investment JSC is expected to generate 2.37 times more return on investment than Damsan JSC. However, CMC Investment is 2.37 times more volatile than Damsan JSC. It trades about 0.04 of its potential returns per unit of risk. Damsan JSC is currently generating about 0.0 per unit of risk. If you would invest  520,000  in CMC Investment JSC on October 23, 2024 and sell it today you would earn a total of  130,000  from holding CMC Investment JSC or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	69.56%
Values	Daily Returns

CMC Investment JSC  vs.  Damsan JSC

CMC Investment JSC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Investment JSC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, CMC Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

Damsan JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Damsan JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with CMC Investment and Damsan JSC

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

The idea behind CMC Investment JSC and Damsan JSC 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.