Correlation Between Root and Dover

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

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

Diversification Opportunities for Root and Dover

0.8

Correlation Coefficient

Root  Dover

Very poor diversification

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

Pair Corralation between Root and Dover

Given the investment horizon of 90 days Root Inc is expected to generate 5.42 times more return on investment than Dover. However, Root is 5.42 times more volatile than Dover. It trades about 0.07 of its potential returns per unit of risk. Dover is currently generating about 0.04 per unit of risk. If you would invest  5,148  in Root Inc on September 28, 2024 and sell it today you would earn a total of  2,460  from holding Root Inc or generate 47.79% return on investment over 90 days.

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

Root Inc  vs.  Dover

Root Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Root Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Root unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dover

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dover has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dover is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Root and Dover

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

The idea behind Root Inc and Dover 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.