Correlation Between Dom Development and Tower Investments

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

Diversification Opportunities for Dom Development and Tower Investments

-0.81

Correlation Coefficient

Dom Development  Tower Investments

Pay attention - limited upside

The 3 months correlation between Dom and Tower is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dom Development SA and Tower Investments SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Investments 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 Tower Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Investments has no effect on the direction of Dom Development i.e., Dom Development and Tower Investments go up and down completely randomly.

Pair Corralation between Dom Development and Tower Investments

Assuming the 90 days trading horizon Dom Development SA is expected to generate 0.52 times more return on investment than Tower Investments. However, Dom Development SA is 1.93 times less risky than Tower Investments. It trades about 0.15 of its potential returns per unit of risk. Tower Investments SA is currently generating about -0.09 per unit of risk. If you would invest  16,900  in Dom Development SA on August 30, 2024 and sell it today you would earn a total of  2,780  from holding Dom Development SA or generate 16.45% return on investment over 90 days.

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

Dom Development SA  vs.  Tower Investments SA

Dom Development SA

Risk-Adjusted Performance

12 of 100

Good

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

Tower Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tower Investments SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Dom Development and Tower Investments

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

The idea behind Dom Development SA and Tower Investments 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.