Correlation Between Dom Development and Echo Investment

Can any of the company-specific risk be diversified away by investing in both Dom Development and Echo Investment 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 Echo Investment 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 Echo Investment SA, you can compare the effects of market volatilities on Dom Development and Echo Investment 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 Echo Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dom Development and Echo Investment.

Diversification Opportunities for Dom Development and Echo Investment

-0.3

Correlation Coefficient

Dom Development  Echo Investment

Very good diversification

The 3 months correlation between Dom and Echo is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dom Development SA and Echo Investment SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Echo Investment 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 Echo Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Echo Investment SA has no effect on the direction of Dom Development i.e., Dom Development and Echo Investment go up and down completely randomly.

Pair Corralation between Dom Development and Echo Investment

Assuming the 90 days trading horizon Dom Development SA is expected to generate 0.97 times more return on investment than Echo Investment. However, Dom Development SA is 1.03 times less risky than Echo Investment. It trades about 0.03 of its potential returns per unit of risk. Echo Investment SA is currently generating about 0.02 per unit of risk. If you would invest  18,910  in Dom Development SA on October 24, 2024 and sell it today you would earn a total of  390.00  from holding Dom Development SA or generate 2.06% return on investment over 90 days.

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

Dom Development SA  vs.  Echo Investment SA

Dom Development SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dom Development SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Dom Development is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Echo Investment SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Echo Investment SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Echo Investment is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Dom Development and Echo Investment

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

The idea behind Dom Development SA and Echo Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.