Correlation Between Dragon Capital and Risk George

Can any of the company-specific risk be diversified away by investing in both Dragon Capital and Risk George 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 Dragon Capital and Risk George into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dragon Capital Grp and Risk George Inds, you can compare the effects of market volatilities on Dragon Capital and Risk George 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 Dragon Capital with a short position of Risk George. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dragon Capital and Risk George.

Diversification Opportunities for Dragon Capital and Risk George

0.2

Correlation Coefficient

Dragon Capital  Risk George

Modest diversification

The 3 months correlation between Dragon and Risk is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dragon Capital Grp and Risk George Inds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Risk George Inds and Dragon Capital 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 Dragon Capital Grp are associated (or correlated) with Risk George. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Risk George Inds has no effect on the direction of Dragon Capital i.e., Dragon Capital and Risk George go up and down completely randomly.

Pair Corralation between Dragon Capital and Risk George

Given the investment horizon of 90 days Dragon Capital Grp is expected to generate 5.41 times more return on investment than Risk George. However, Dragon Capital is 5.41 times more volatile than Risk George Inds. It trades about 0.11 of its potential returns per unit of risk. Risk George Inds is currently generating about 0.04 per unit of risk. If you would invest  0.06  in Dragon Capital Grp on September 29, 2024 and sell it today you would lose (0.03) from holding Dragon Capital Grp or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.57%
Values	Daily Returns

Dragon Capital Grp  vs.  Risk George Inds

Dragon Capital Grp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dragon Capital Grp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Dragon Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Risk George Inds

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Risk George Inds are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Risk George may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dragon Capital and Risk George

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

The idea behind Dragon Capital Grp and Risk George Inds 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.