Correlation Between DIA and Tensor

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

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

Diversification Opportunities for DIA and Tensor

0.37

Correlation Coefficient

DIA  Tensor

Weak diversification

The 3 months correlation between DIA and Tensor is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding DIA and Tensor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tensor and DIA 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 DIA are associated (or correlated) with Tensor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tensor has no effect on the direction of DIA i.e., DIA and Tensor go up and down completely randomly.

Pair Corralation between DIA and Tensor

Assuming the 90 days trading horizon DIA is expected to generate 1.95 times more return on investment than Tensor. However, DIA is 1.95 times more volatile than Tensor. It trades about 0.16 of its potential returns per unit of risk. Tensor is currently generating about 0.2 per unit of risk. If you would invest  35.00  in DIA on September 3, 2024 and sell it today you would earn a total of  59.00  from holding DIA or generate 168.57% return on investment over 90 days.

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

DIA  vs.  Tensor

DIA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tensor

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with DIA and Tensor

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

The idea behind DIA and Tensor 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.