Correlation Between Overlay Shares and Day HaganNed

Can any of the company-specific risk be diversified away by investing in both Overlay Shares and Day HaganNed 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 Overlay Shares and Day HaganNed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Overlay Shares Large and Day HaganNed Davis, you can compare the effects of market volatilities on Overlay Shares and Day HaganNed 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 Overlay Shares with a short position of Day HaganNed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Overlay Shares and Day HaganNed.

Diversification Opportunities for Overlay Shares and Day HaganNed

0.91

Correlation Coefficient

Overlay Shares  Day HaganNed

Almost no diversification

The 3 months correlation between Overlay and Day is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Large and Day HaganNed Davis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Day HaganNed Davis and Overlay Shares 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 Overlay Shares Large are associated (or correlated) with Day HaganNed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Day HaganNed Davis has no effect on the direction of Overlay Shares i.e., Overlay Shares and Day HaganNed go up and down completely randomly.

Pair Corralation between Overlay Shares and Day HaganNed

Considering the 90-day investment horizon Overlay Shares Large is expected to under-perform the Day HaganNed. In addition to that, Overlay Shares is 1.33 times more volatile than Day HaganNed Davis. It trades about -0.05 of its total potential returns per unit of risk. Day HaganNed Davis is currently generating about -0.03 per unit of volatility. If you would invest  4,195  in Day HaganNed Davis on December 19, 2024 and sell it today you would lose (86.00) from holding Day HaganNed Davis or give up 2.05% of portfolio value over 90 days.

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

Overlay Shares Large  vs.  Day HaganNed Davis

Overlay Shares Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Overlay Shares Large has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Overlay Shares is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Day HaganNed Davis

Risk-Adjusted Performance

Very Weak

Over the last 90 days Day HaganNed Davis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Day HaganNed is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Overlay Shares and Day HaganNed

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

The idea behind Overlay Shares Large and Day HaganNed Davis 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.