Correlation Between Descartes Systems and Hamilton MidSmall

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

By analyzing existing cross correlation between Descartes Systems Group and Hamilton MidSmall Cap Financials, you can compare the effects of market volatilities on Descartes Systems and Hamilton MidSmall 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 Descartes Systems with a short position of Hamilton MidSmall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Descartes Systems and Hamilton MidSmall.

Diversification Opportunities for Descartes Systems and Hamilton MidSmall

0.97

Correlation Coefficient

Descartes Systems  Hamilton MidSmall

Almost no diversification

The 3 months correlation between Descartes and Hamilton is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Hamilton MidSmall Cap Financia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton MidSmall Cap and Descartes Systems 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 Descartes Systems Group are associated (or correlated) with Hamilton MidSmall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton MidSmall Cap has no effect on the direction of Descartes Systems i.e., Descartes Systems and Hamilton MidSmall go up and down completely randomly.

Pair Corralation between Descartes Systems and Hamilton MidSmall

Assuming the 90 days trading horizon Descartes Systems Group is expected to generate 0.97 times more return on investment than Hamilton MidSmall. However, Descartes Systems Group is 1.03 times less risky than Hamilton MidSmall. It trades about 0.23 of its potential returns per unit of risk. Hamilton MidSmall Cap Financials is currently generating about 0.19 per unit of risk. If you would invest  13,505  in Descartes Systems Group on August 31, 2024 and sell it today you would earn a total of  2,969  from holding Descartes Systems Group or generate 21.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Descartes Systems Group  vs.  Hamilton MidSmall Cap Financia

Descartes Systems

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Descartes Systems Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Descartes Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Hamilton MidSmall Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hamilton MidSmall Cap Financials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Hamilton MidSmall displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Descartes Systems and Hamilton MidSmall

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

The idea behind Descartes Systems Group and Hamilton MidSmall Cap Financials 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.