Correlation Between Dana Large and Touchstone Small

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

Diversification Opportunities for Dana Large and Touchstone Small

0.59

Correlation Coefficient

Dana Large  Touchstone Small

Very weak diversification

The 3 months correlation between Dana and Touchstone is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Touchstone Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Small Cap 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 Touchstone Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Small Cap has no effect on the direction of Dana Large i.e., Dana Large and Touchstone Small go up and down completely randomly.

Pair Corralation between Dana Large and Touchstone Small

Assuming the 90 days horizon Dana Large is expected to generate 1.65 times less return on investment than Touchstone Small. In addition to that, Dana Large is 1.17 times more volatile than Touchstone Small Cap. It trades about 0.02 of its total potential returns per unit of risk. Touchstone Small Cap is currently generating about 0.03 per unit of volatility. If you would invest  3,443  in Touchstone Small Cap on October 23, 2024 and sell it today you would earn a total of  506.00  from holding Touchstone Small Cap or generate 14.7% return on investment over 90 days.

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

Dana Large Cap  vs.  Touchstone Small Cap

Dana Large Cap

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Touchstone Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Small Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Touchstone Small 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 Touchstone Small

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

The idea behind Dana Large Cap and Touchstone Small Cap 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.