Correlation Between Continental and Douglas Dynamics

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

By analyzing existing cross correlation between Continental AG PK and Douglas Dynamics, you can compare the effects of market volatilities on Continental and Douglas Dynamics 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 Continental with a short position of Douglas Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Continental and Douglas Dynamics.

Diversification Opportunities for Continental and Douglas Dynamics

-0.18

Correlation Coefficient

Continental  Douglas Dynamics

Good diversification

The 3 months correlation between Continental and Douglas is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Continental AG PK and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and Continental 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 Continental AG PK are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Continental i.e., Continental and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Continental and Douglas Dynamics

Assuming the 90 days horizon Continental AG PK is expected to generate 1.05 times more return on investment than Douglas Dynamics. However, Continental is 1.05 times more volatile than Douglas Dynamics. It trades about 0.11 of its potential returns per unit of risk. Douglas Dynamics is currently generating about -0.04 per unit of risk. If you would invest  589.00  in Continental AG PK on September 14, 2024 and sell it today you would earn a total of  96.00  from holding Continental AG PK or generate 16.3% return on investment over 90 days.

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

Continental AG PK  vs.  Douglas Dynamics

Continental AG PK

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Continental AG PK are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Continental showed solid returns over the last few months and may actually be approaching a breakup point.

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Continental and Douglas Dynamics

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

The idea behind Continental AG PK and Douglas Dynamics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.