Correlation Between Descartes Systems and Donnelley Financial

Can any of the company-specific risk be diversified away by investing in both Descartes Systems and Donnelley Financial 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 Donnelley Financial 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 Donnelley Financial Solutions, you can compare the effects of market volatilities on Descartes Systems and Donnelley Financial 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 Donnelley Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Descartes Systems and Donnelley Financial.

Diversification Opportunities for Descartes Systems and Donnelley Financial

0.88

Correlation Coefficient

Descartes Systems  Donnelley Financial

Very poor diversification

The 3 months correlation between Descartes and Donnelley is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Donnelley Financial Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donnelley Financial 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 Donnelley Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donnelley Financial has no effect on the direction of Descartes Systems i.e., Descartes Systems and Donnelley Financial go up and down completely randomly.

Pair Corralation between Descartes Systems and Donnelley Financial

Given the investment horizon of 90 days Descartes Systems Group is expected to generate 0.54 times more return on investment than Donnelley Financial. However, Descartes Systems Group is 1.86 times less risky than Donnelley Financial. It trades about -0.1 of its potential returns per unit of risk. Donnelley Financial Solutions is currently generating about -0.15 per unit of risk. If you would invest  11,411  in Descartes Systems Group on December 30, 2024 and sell it today you would lose (1,387) from holding Descartes Systems Group or give up 12.15% of portfolio value over 90 days.

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

Descartes Systems Group  vs.  Donnelley Financial Solutions

Descartes Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Descartes Systems Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Donnelley Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Donnelley Financial Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Descartes Systems and Donnelley Financial

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

The idea behind Descartes Systems Group and Donnelley Financial Solutions 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.