Correlation Between Dana Small and Dana Large

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

By analyzing existing cross correlation between Dana Small Cap and Dana Large Cap, you can compare the effects of market volatilities on Dana Small and Dana Large 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 Small with a short position of Dana Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dana Small and Dana Large.

Diversification Opportunities for Dana Small and Dana Large

0.64

Correlation Coefficient

Dana Small  Dana Large

Poor diversification

The 3 months correlation between Dana and Dana is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dana Small Cap and Dana Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Large Cap and Dana Small 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 Small Cap are associated (or correlated) with Dana Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Large Cap has no effect on the direction of Dana Small i.e., Dana Small and Dana Large go up and down completely randomly.

Pair Corralation between Dana Small and Dana Large

Assuming the 90 days horizon Dana Small is expected to generate 1.4 times less return on investment than Dana Large. In addition to that, Dana Small is 1.5 times more volatile than Dana Large Cap. It trades about 0.05 of its total potential returns per unit of risk. Dana Large Cap is currently generating about 0.11 per unit of volatility. If you would invest  1,795  in Dana Large Cap on September 28, 2024 and sell it today you would earn a total of  910.00  from holding Dana Large Cap or generate 50.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Dana Small Cap  vs.  Dana Large Cap

Dana Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dana Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Dana Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dana Large Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Large Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dana Large 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 Small and Dana Large

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

The idea behind Dana Small Cap and Dana Large 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.