Correlation Between Davis Commodities and CapitaLand Investment

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

By analyzing existing cross correlation between Davis Commodities Limited and CapitaLand Investment Limited, you can compare the effects of market volatilities on Davis Commodities and CapitaLand Investment 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 Davis Commodities with a short position of CapitaLand Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Commodities and CapitaLand Investment.

Diversification Opportunities for Davis Commodities and CapitaLand Investment

0.59

Correlation Coefficient

Davis Commodities  CapitaLand Investment

Very weak diversification

The 3 months correlation between Davis and CapitaLand is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Davis Commodities Limited and CapitaLand Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CapitaLand Investment and Davis Commodities 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 Davis Commodities Limited are associated (or correlated) with CapitaLand Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CapitaLand Investment has no effect on the direction of Davis Commodities i.e., Davis Commodities and CapitaLand Investment go up and down completely randomly.

Pair Corralation between Davis Commodities and CapitaLand Investment

Given the investment horizon of 90 days Davis Commodities Limited is expected to under-perform the CapitaLand Investment. In addition to that, Davis Commodities is 1.42 times more volatile than CapitaLand Investment Limited. It trades about -0.01 of its total potential returns per unit of risk. CapitaLand Investment Limited is currently generating about -0.01 per unit of volatility. If you would invest  206.00  in CapitaLand Investment Limited on September 14, 2024 and sell it today you would lose (7.00) from holding CapitaLand Investment Limited or give up 3.4% of portfolio value over 90 days.

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

Davis Commodities Limited  vs.  CapitaLand Investment Limited

Davis Commodities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Davis Commodities is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

CapitaLand Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CapitaLand Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, CapitaLand Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Davis Commodities and CapitaLand Investment

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

The idea behind Davis Commodities Limited and CapitaLand Investment Limited 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.