Correlation Between DENT and PAY

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

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

Diversification Opportunities for DENT and PAY

0.01

Correlation Coefficient

DENT  PAY

Significant diversification

The 3 months correlation between DENT and PAY is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding DENT and PAY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAY and DENT 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 DENT are associated (or correlated) with PAY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAY has no effect on the direction of DENT i.e., DENT and PAY go up and down completely randomly.

Pair Corralation between DENT and PAY

Assuming the 90 days trading horizon DENT is expected to under-perform the PAY. In addition to that, DENT is 1.53 times more volatile than PAY. It trades about -0.06 of its total potential returns per unit of risk. PAY is currently generating about -0.01 per unit of volatility. If you would invest  0.67  in PAY on November 27, 2024 and sell it today you would lose (0.08) from holding PAY or give up 11.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

DENT  vs.  PAY

DENT

Risk-Adjusted Performance

Very Weak

Over the last 90 days DENT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for DENT shareholders.

PAY

Risk-Adjusted Performance

Very Weak

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

Pair Trading with DENT and PAY

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

The idea behind DENT and PAY 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.