Correlation Between Itay Financial and Direct Capital

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

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

Diversification Opportunities for Itay Financial and Direct Capital

-0.58

Correlation Coefficient

Itay Financial  Direct Capital

Excellent diversification

The 3 months correlation between Itay and Direct is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Itay Financial AA and Direct Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Capital Inves and Itay Financial 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 Itay Financial AA are associated (or correlated) with Direct Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Capital Inves has no effect on the direction of Itay Financial i.e., Itay Financial and Direct Capital go up and down completely randomly.

Pair Corralation between Itay Financial and Direct Capital

Assuming the 90 days trading horizon Itay Financial AA is expected to generate 3.01 times more return on investment than Direct Capital. However, Itay Financial is 3.01 times more volatile than Direct Capital Investments. It trades about 0.14 of its potential returns per unit of risk. Direct Capital Investments is currently generating about 0.0 per unit of risk. If you would invest  38,740  in Itay Financial AA on December 29, 2024 and sell it today you would earn a total of  30,020  from holding Itay Financial AA or generate 77.49% return on investment over 90 days.

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

Itay Financial AA  vs.  Direct Capital Investments

Itay Financial AA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Itay Financial AA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Itay Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Direct Capital Inves

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Direct Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Itay Financial and Direct Capital

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

The idea behind Itay Financial AA and Direct Capital Investments 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.