Correlation Between Dom Development and Inter Cars

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

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

Diversification Opportunities for Dom Development and Inter Cars

0.08

Correlation Coefficient

Dom Development  Inter Cars

Significant diversification

The 3 months correlation between Dom and Inter is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dom Development SA and Inter Cars SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Cars SA and Dom Development 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 Dom Development SA are associated (or correlated) with Inter Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Cars SA has no effect on the direction of Dom Development i.e., Dom Development and Inter Cars go up and down completely randomly.

Pair Corralation between Dom Development and Inter Cars

Assuming the 90 days trading horizon Dom Development SA is expected to generate 0.98 times more return on investment than Inter Cars. However, Dom Development SA is 1.02 times less risky than Inter Cars. It trades about 0.1 of its potential returns per unit of risk. Inter Cars SA is currently generating about 0.03 per unit of risk. If you would invest  8,536  in Dom Development SA on October 27, 2024 and sell it today you would earn a total of  11,864  from holding Dom Development SA or generate 138.99% return on investment over 90 days.

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

Dom Development SA  vs.  Inter Cars SA

Dom Development SA

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dom Development SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dom Development may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Inter Cars SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Cars SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Inter Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dom Development and Inter Cars

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

The idea behind Dom Development SA and Inter Cars SA 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.