Correlation Between Cotec Construction and Damsan JSC

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

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

Diversification Opportunities for Cotec Construction and Damsan JSC

0.71

Correlation Coefficient

Cotec Construction  Damsan JSC

Poor diversification

The 3 months correlation between Cotec and Damsan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cotec Construction JSC and Damsan JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Damsan JSC and Cotec Construction 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 Cotec Construction 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 Cotec Construction i.e., Cotec Construction and Damsan JSC go up and down completely randomly.

Pair Corralation between Cotec Construction and Damsan JSC

Assuming the 90 days trading horizon Cotec Construction JSC is expected to generate 1.48 times more return on investment than Damsan JSC. However, Cotec Construction is 1.48 times more volatile than Damsan JSC. It trades about 0.19 of its potential returns per unit of risk. Damsan JSC is currently generating about 0.05 per unit of risk. If you would invest  6,820,000  in Cotec Construction JSC on December 27, 2024 and sell it today you would earn a total of  1,830,000  from holding Cotec Construction JSC or generate 26.83% return on investment over 90 days.

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

Cotec Construction JSC  vs.  Damsan JSC

Cotec Construction JSC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cotec Construction JSC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cotec Construction displayed solid returns over the last few months and may actually be approaching a breakup point.

Damsan JSC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Damsan JSC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Damsan JSC is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cotec Construction and Damsan JSC

The main advantage of trading using opposite Cotec Construction and Damsan JSC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cotec Construction 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 Cotec Construction 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.