Correlation Between Dana Large and Cognios Market

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

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

Diversification Opportunities for Dana Large and Cognios Market

0.1

Correlation Coefficient

Dana Large  Cognios Market

Average diversification

The 3 months correlation between Dana and Cognios is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Cognios Market Neutral in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognios Market Neutral and Dana Large 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 Dana Large Cap are associated (or correlated) with Cognios Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognios Market Neutral has no effect on the direction of Dana Large i.e., Dana Large and Cognios Market go up and down completely randomly.

Pair Corralation between Dana Large and Cognios Market

Assuming the 90 days horizon Dana Large Cap is expected to under-perform the Cognios Market. In addition to that, Dana Large is 3.16 times more volatile than Cognios Market Neutral. It trades about -0.1 of its total potential returns per unit of risk. Cognios Market Neutral is currently generating about -0.08 per unit of volatility. If you would invest  1,252  in Cognios Market Neutral on December 29, 2024 and sell it today you would lose (20.00) from holding Cognios Market Neutral or give up 1.6% of portfolio value over 90 days.

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

Dana Large Cap  vs.  Cognios Market Neutral

Dana Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dana Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Cognios Market Neutral

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cognios Market Neutral has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Cognios Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dana Large and Cognios Market

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

The idea behind Dana Large Cap and Cognios Market Neutral 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.