Correlation Between Dana Large and Sentinel Small

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

Diversification Opportunities for Dana Large and Sentinel Small

0.61

Correlation Coefficient

Dana Large  Sentinel Small

Poor diversification

The 3 months correlation between Dana and Sentinel is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Sentinel Small Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Small Pany 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 Sentinel Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Small Pany has no effect on the direction of Dana Large i.e., Dana Large and Sentinel Small go up and down completely randomly.

Pair Corralation between Dana Large and Sentinel Small

Assuming the 90 days horizon Dana Large Cap is expected to generate 0.91 times more return on investment than Sentinel Small. However, Dana Large Cap is 1.09 times less risky than Sentinel Small. It trades about -0.08 of its potential returns per unit of risk. Sentinel Small Pany is currently generating about -0.36 per unit of risk. If you would invest  2,223  in Dana Large Cap on December 2, 2024 and sell it today you would lose (32.00) from holding Dana Large Cap or give up 1.44% of portfolio value over 90 days.

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

Dana Large Cap  vs.  Sentinel Small Pany

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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Sentinel Small Pany

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sentinel Small Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Dana Large and Sentinel Small

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

The idea behind Dana Large Cap and Sentinel Small Pany 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.