Correlation Between DATA and DUSK

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

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

Diversification Opportunities for DATA and DUSK

0.82

Correlation Coefficient

DATA  DUSK

Very poor diversification

The 3 months correlation between DATA and DUSK is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding DATA and DUSK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DUSK and DATA 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 DATA are associated (or correlated) with DUSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DUSK has no effect on the direction of DATA i.e., DATA and DUSK go up and down completely randomly.

Pair Corralation between DATA and DUSK

Assuming the 90 days trading horizon DATA is expected to generate 0.97 times more return on investment than DUSK. However, DATA is 1.04 times less risky than DUSK. It trades about -0.01 of its potential returns per unit of risk. DUSK is currently generating about -0.03 per unit of risk. If you would invest  6.49  in DATA on September 1, 2024 and sell it today you would lose (1.80) from holding DATA or give up 27.73% of portfolio value over 90 days.

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

DATA  vs.  DUSK

DATA

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

DUSK

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DUSK are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DUSK exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and DUSK

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

The idea behind DATA and DUSK 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.