Correlation Between Doman Building and Champion Bear

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

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

Diversification Opportunities for Doman Building and Champion Bear

-0.43

Correlation Coefficient

Doman Building  Champion Bear

Very good diversification

The 3 months correlation between Doman and Champion is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Doman Building Materials and Champion Bear Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Bear Resources and Doman Building 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 Doman Building Materials are associated (or correlated) with Champion Bear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Bear Resources has no effect on the direction of Doman Building i.e., Doman Building and Champion Bear go up and down completely randomly.

Pair Corralation between Doman Building and Champion Bear

Assuming the 90 days trading horizon Doman Building is expected to generate 10.3 times less return on investment than Champion Bear. But when comparing it to its historical volatility, Doman Building Materials is 10.4 times less risky than Champion Bear. It trades about 0.05 of its potential returns per unit of risk. Champion Bear Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Champion Bear Resources on September 14, 2024 and sell it today you would lose (4.50) from holding Champion Bear Resources or give up 64.29% of portfolio value over 90 days.

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

Doman Building Materials  vs.  Champion Bear Resources

Doman Building Materials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Doman Building Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Doman Building displayed solid returns over the last few months and may actually be approaching a breakup point.

Champion Bear Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Champion Bear Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Champion Bear 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 Doman Building and Champion Bear

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

The idea behind Doman Building Materials and Champion Bear Resources 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.