Correlation Between Danakali and Itafos

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

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

Diversification Opportunities for Danakali and Itafos

-0.05

Correlation Coefficient

Danakali  Itafos

Good diversification

The 3 months correlation between Danakali and Itafos is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Danakali and Itafos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itafos Inc and Danakali 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 Danakali are associated (or correlated) with Itafos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itafos Inc has no effect on the direction of Danakali i.e., Danakali and Itafos go up and down completely randomly.

Pair Corralation between Danakali and Itafos

Assuming the 90 days horizon Danakali is expected to generate 18.32 times more return on investment than Itafos. However, Danakali is 18.32 times more volatile than Itafos Inc. It trades about 0.02 of its potential returns per unit of risk. Itafos Inc is currently generating about 0.26 per unit of risk. If you would invest  16.00  in Danakali on October 9, 2024 and sell it today you would lose (1.00) from holding Danakali or give up 6.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.0%
Values	Daily Returns

Danakali  vs.  Itafos Inc

Danakali

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danakali has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Itafos Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itafos Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Itafos is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Danakali and Itafos

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

The idea behind Danakali and Itafos Inc 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.