Correlation Between East Coast and DTC Industries

Can any of the company-specific risk be diversified away by investing in both East Coast and DTC Industries 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 East Coast and DTC Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between East Coast Furnitech and DTC Industries Public, you can compare the effects of market volatilities on East Coast and DTC Industries 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 East Coast with a short position of DTC Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Coast and DTC Industries.

Diversification Opportunities for East Coast and DTC Industries

-0.05

Correlation Coefficient

East Coast  DTC Industries

Good diversification

The 3 months correlation between East and DTC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding East Coast Furnitech and DTC Industries Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTC Industries Public and East Coast 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 East Coast Furnitech are associated (or correlated) with DTC Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTC Industries Public has no effect on the direction of East Coast i.e., East Coast and DTC Industries go up and down completely randomly.

Pair Corralation between East Coast and DTC Industries

Assuming the 90 days trading horizon East Coast Furnitech is expected to generate 13.82 times more return on investment than DTC Industries. However, East Coast is 13.82 times more volatile than DTC Industries Public. It trades about 0.08 of its potential returns per unit of risk. DTC Industries Public is currently generating about 0.06 per unit of risk. If you would invest  43.00  in East Coast Furnitech on October 25, 2024 and sell it today you would lose (5.00) from holding East Coast Furnitech or give up 11.63% of portfolio value over 90 days.

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

East Coast Furnitech  vs.  DTC Industries Public

East Coast Furnitech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Coast Furnitech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

DTC Industries Public

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DTC Industries Public are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, DTC Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with East Coast and DTC Industries

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

The idea behind East Coast Furnitech and DTC Industries Public 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.