Correlation Between Dynex Capital and Cartica Acquisition

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

By analyzing existing cross correlation between Dynex Capital and Cartica Acquisition Corp, you can compare the effects of market volatilities on Dynex Capital and Cartica Acquisition 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 Cartica Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynex Capital and Cartica Acquisition.

Diversification Opportunities for Dynex Capital and Cartica Acquisition

0.69

Correlation Coefficient

Dynex Capital  Cartica Acquisition

Poor diversification

The 3 months correlation between Dynex and Cartica is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dynex Capital and Cartica Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cartica Acquisition Corp 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 Cartica Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cartica Acquisition Corp has no effect on the direction of Dynex Capital i.e., Dynex Capital and Cartica Acquisition go up and down completely randomly.

Pair Corralation between Dynex Capital and Cartica Acquisition

Allowing for the 90-day total investment horizon Dynex Capital is expected to generate 434.5 times less return on investment than Cartica Acquisition. But when comparing it to its historical volatility, Dynex Capital is 196.8 times less risky than Cartica Acquisition. It trades about 0.09 of its potential returns per unit of risk. Cartica Acquisition Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Cartica Acquisition Corp on September 22, 2024 and sell it today you would earn a total of  31.00  from holding Cartica Acquisition Corp or generate 775.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	68.75%
Values	Daily Returns

Dynex Capital  vs.  Cartica Acquisition Corp

Dynex Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 5 (%) 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.

Cartica Acquisition Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cartica Acquisition Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, Cartica Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dynex Capital and Cartica Acquisition

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

The idea behind Dynex Capital and Cartica Acquisition Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.