Correlation Between Dana Large and Df Dent

Can any of the company-specific risk be diversified away by investing in both Dana Large and Df Dent 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 Df Dent 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 Df Dent Small, you can compare the effects of market volatilities on Dana Large and Df Dent 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 Df Dent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dana Large and Df Dent.

Diversification Opportunities for Dana Large and Df Dent

0.92

Correlation Coefficient

Dana Large  Df Dent

Almost no diversification

The 3 months correlation between Dana and DFDSX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Df Dent Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Df Dent Small 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 Df Dent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Df Dent Small has no effect on the direction of Dana Large i.e., Dana Large and Df Dent go up and down completely randomly.

Pair Corralation between Dana Large and Df Dent

Assuming the 90 days horizon Dana Large is expected to generate 1.18 times less return on investment than Df Dent. But when comparing it to its historical volatility, Dana Large Cap is 1.7 times less risky than Df Dent. It trades about 0.17 of its potential returns per unit of risk. Df Dent Small is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,533  in Df Dent Small on September 19, 2024 and sell it today you would earn a total of  54.00  from holding Df Dent Small or generate 2.13% return on investment over 90 days.

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

Dana Large Cap  vs.  Df Dent Small

Dana Large Cap

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Large Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Dana Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Df Dent Small

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Df Dent Small are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Df Dent 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 Df Dent

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

The idea behind Dana Large Cap and Df Dent Small 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.