Correlation Between Delta Manufacturing and Fiberweb

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

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

Diversification Opportunities for Delta Manufacturing and Fiberweb

0.82

Correlation Coefficient

Delta Manufacturing  Fiberweb

Very poor diversification

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

Pair Corralation between Delta Manufacturing and Fiberweb

Assuming the 90 days trading horizon Delta Manufacturing is expected to generate 1.45 times less return on investment than Fiberweb. But when comparing it to its historical volatility, Delta Manufacturing Limited is 1.05 times less risky than Fiberweb. It trades about 0.04 of its potential returns per unit of risk. Fiberweb Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,610  in Fiberweb Limited on September 28, 2024 and sell it today you would earn a total of  2,690  from holding Fiberweb Limited or generate 74.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.38%
Values	Daily Returns

Delta Manufacturing Limited  vs.  Fiberweb Limited

Delta Manufacturing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Delta Manufacturing sustained solid returns over the last few months and may actually be approaching a breakup point.

Fiberweb Limited

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fiberweb Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Fiberweb exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Manufacturing and Fiberweb

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

The idea behind Delta Manufacturing Limited and Fiberweb Limited 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.