Correlation Between Praxis Home and Den Networks

Can any of the company-specific risk be diversified away by investing in both Praxis Home and Den Networks 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 Praxis Home and Den Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Praxis Home Retail and Den Networks Limited, you can compare the effects of market volatilities on Praxis Home and Den Networks 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 Praxis Home with a short position of Den Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Praxis Home and Den Networks.

Diversification Opportunities for Praxis Home and Den Networks

0.38

Correlation Coefficient

Praxis Home  Den Networks

Weak diversification

The 3 months correlation between Praxis and Den is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Home Retail and Den Networks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Den Networks Limited and Praxis Home 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 Praxis Home Retail are associated (or correlated) with Den Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Den Networks Limited has no effect on the direction of Praxis Home i.e., Praxis Home and Den Networks go up and down completely randomly.

Pair Corralation between Praxis Home and Den Networks

Assuming the 90 days trading horizon Praxis Home Retail is expected to under-perform the Den Networks. But the stock apears to be less risky and, when comparing its historical volatility, Praxis Home Retail is 1.25 times less risky than Den Networks. The stock trades about -0.15 of its potential returns per unit of risk. The Den Networks Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,032  in Den Networks Limited on October 27, 2024 and sell it today you would lose (160.00) from holding Den Networks Limited or give up 3.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Praxis Home Retail  vs.  Den Networks Limited

Praxis Home Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Praxis Home Retail has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Den Networks Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Den Networks Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Praxis Home and Den Networks

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

The idea behind Praxis Home Retail and Den Networks Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.