Correlation Between Dunham Large and Power Momentum

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

By analyzing existing cross correlation between Dunham Large Cap and Power Momentum Index, you can compare the effects of market volatilities on Dunham Large and Power Momentum 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 Dunham Large with a short position of Power Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dunham Large and Power Momentum.

Diversification Opportunities for Dunham Large and Power Momentum

0.85

Correlation Coefficient

Dunham Large  Power Momentum

Very poor diversification

The 3 months correlation between Dunham and Power is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dunham Large Cap and Power Momentum Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Momentum Index and Dunham Large 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 Dunham Large Cap are associated (or correlated) with Power Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Momentum Index has no effect on the direction of Dunham Large i.e., Dunham Large and Power Momentum go up and down completely randomly.

Pair Corralation between Dunham Large and Power Momentum

Assuming the 90 days horizon Dunham Large Cap is expected to under-perform the Power Momentum. But the mutual fund apears to be less risky and, when comparing its historical volatility, Dunham Large Cap is 1.13 times less risky than Power Momentum. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Power Momentum Index is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,353  in Power Momentum Index on October 22, 2024 and sell it today you would earn a total of  6.00  from holding Power Momentum Index or generate 0.44% return on investment over 90 days.

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

Dunham Large Cap  vs.  Power Momentum Index

Dunham Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dunham Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dunham Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Power Momentum Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Momentum Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Power Momentum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dunham Large and Power Momentum

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

The idea behind Dunham Large Cap and Power Momentum Index 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.