Correlation Between Dynex Capital and Central Securities

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

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

Diversification Opportunities for Dynex Capital and Central Securities

0.55

Correlation Coefficient

Dynex Capital  Central Securities

Very weak diversification

The 3 months correlation between Dynex and Central is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dynex Capital and Central Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Securities and Dynex 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 Dynex Capital are associated (or correlated) with Central Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Securities has no effect on the direction of Dynex Capital i.e., Dynex Capital and Central Securities go up and down completely randomly.

Pair Corralation between Dynex Capital and Central Securities

Allowing for the 90-day total investment horizon Dynex Capital is expected to generate 2.53 times less return on investment than Central Securities. In addition to that, Dynex Capital is 1.37 times more volatile than Central Securities. It trades about 0.06 of its total potential returns per unit of risk. Central Securities is currently generating about 0.19 per unit of volatility. If you would invest  4,329  in Central Securities on September 13, 2024 and sell it today you would earn a total of  360.00  from holding Central Securities or generate 8.32% return on investment over 90 days.

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

Dynex Capital  vs.  Central Securities

Dynex Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dynex Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Central Securities

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Securities are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Central Securities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dynex Capital and Central Securities

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

The idea behind Dynex Capital and Central Securities 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.