Correlation Between Dupont De and DOMTAR

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

By analyzing existing cross correlation between Dupont De Nemours and DOMTAR P 625, you can compare the effects of market volatilities on Dupont De and DOMTAR 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 Dupont De with a short position of DOMTAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dupont De and DOMTAR.

Diversification Opportunities for Dupont De and DOMTAR

-0.47

Correlation Coefficient

Dupont De  DOMTAR

Very good diversification

The 3 months correlation between Dupont and DOMTAR is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours and DOMTAR P 625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOMTAR P 625 and Dupont De 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 Dupont De Nemours are associated (or correlated) with DOMTAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOMTAR P 625 has no effect on the direction of Dupont De i.e., Dupont De and DOMTAR go up and down completely randomly.

Pair Corralation between Dupont De and DOMTAR

Allowing for the 90-day total investment horizon Dupont De is expected to generate 1.49 times less return on investment than DOMTAR. But when comparing it to its historical volatility, Dupont De Nemours is 2.51 times less risky than DOMTAR. It trades about 0.02 of its potential returns per unit of risk. DOMTAR P 625 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,797  in DOMTAR P 625 on October 25, 2024 and sell it today you would lose (662.00) from holding DOMTAR P 625 or give up 9.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.03%
Values	Daily Returns

Dupont De Nemours  vs.  DOMTAR P 625

Dupont De Nemours

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dupont De Nemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dupont De is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

DOMTAR P 625

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOMTAR P 625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DOMTAR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dupont De and DOMTAR

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

The idea behind Dupont De Nemours and DOMTAR P 625 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.