Correlation Between Firm Capital and Dominion Lending

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

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

Diversification Opportunities for Firm Capital and Dominion Lending

0.81

Correlation Coefficient

Firm Capital  Dominion Lending

Very poor diversification

The 3 months correlation between Firm and Dominion is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Firm Capital Mortgage and Dominion Lending Centres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Lending Centres and Firm 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 Firm Capital Mortgage are associated (or correlated) with Dominion Lending. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Lending Centres has no effect on the direction of Firm Capital i.e., Firm Capital and Dominion Lending go up and down completely randomly.

Pair Corralation between Firm Capital and Dominion Lending

Assuming the 90 days horizon Firm Capital is expected to generate 5.25 times less return on investment than Dominion Lending. But when comparing it to its historical volatility, Firm Capital Mortgage is 3.23 times less risky than Dominion Lending. It trades about 0.21 of its potential returns per unit of risk. Dominion Lending Centres is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  525.00  in Dominion Lending Centres on October 6, 2024 and sell it today you would earn a total of  275.00  from holding Dominion Lending Centres or generate 52.38% return on investment over 90 days.

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

Firm Capital Mortgage  vs.  Dominion Lending Centres

Firm Capital Mortgage

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Firm Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dominion Lending Centres

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Lending Centres are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dominion Lending displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Firm Capital and Dominion Lending

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

The idea behind Firm Capital Mortgage and Dominion Lending Centres 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.