Correlation Between Park Electrochemical and Ducommun Incorporated

Can any of the company-specific risk be diversified away by investing in both Park Electrochemical and Ducommun Incorporated 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 Park Electrochemical and Ducommun Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Park Electrochemical and Ducommun Incorporated, you can compare the effects of market volatilities on Park Electrochemical and Ducommun Incorporated 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 Park Electrochemical with a short position of Ducommun Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Park Electrochemical and Ducommun Incorporated.

Diversification Opportunities for Park Electrochemical and Ducommun Incorporated

0.8

Correlation Coefficient

Park Electrochemical  Ducommun Incorporated

Very poor diversification

The 3 months correlation between Park and Ducommun is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and Ducommun Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ducommun Incorporated and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with Ducommun Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ducommun Incorporated has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and Ducommun Incorporated go up and down completely randomly.

Pair Corralation between Park Electrochemical and Ducommun Incorporated

Considering the 90-day investment horizon Park Electrochemical is expected to under-perform the Ducommun Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Park Electrochemical is 1.02 times less risky than Ducommun Incorporated. The stock trades about -0.01 of its potential returns per unit of risk. The Ducommun Incorporated is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,095  in Ducommun Incorporated on December 28, 2024 and sell it today you would lose (109.00) from holding Ducommun Incorporated or give up 1.79% of portfolio value over 90 days.

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

Park Electrochemical  vs.  Ducommun Incorporated

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ducommun Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ducommun Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Ducommun Incorporated is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Park Electrochemical and Ducommun Incorporated

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

The idea behind Park Electrochemical and Ducommun Incorporated 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.