Correlation Between CMC Corp and Van Dien

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

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

Diversification Opportunities for CMC Corp and Van Dien

0.44

Correlation Coefficient

CMC Corp  Van Dien

Very weak diversification

The 3 months correlation between CMC and Van is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding CMC Corp and Van Dien Fused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Van Dien Fused and CMC Corp 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 Corp are associated (or correlated) with Van Dien. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Van Dien Fused has no effect on the direction of CMC Corp i.e., CMC Corp and Van Dien go up and down completely randomly.

Pair Corralation between CMC Corp and Van Dien

Assuming the 90 days trading horizon CMC Corp is expected to under-perform the Van Dien. But the stock apears to be less risky and, when comparing its historical volatility, CMC Corp is 3.04 times less risky than Van Dien. The stock trades about -0.19 of its potential returns per unit of risk. The Van Dien Fused is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,335,000  in Van Dien Fused on October 24, 2024 and sell it today you would earn a total of  75,000  from holding Van Dien Fused or generate 5.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	66.67%
Values	Daily Returns

CMC Corp  vs.  Van Dien Fused

CMC Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, CMC Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Van Dien Fused

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Van Dien Fused has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Van Dien is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CMC Corp and Van Dien

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

The idea behind CMC Corp and Van Dien Fused 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.