Correlation Between Sure Tech and Direct Capital

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

By analyzing existing cross correlation between Sure Tech Investments LP and Direct Capital Investments, you can compare the effects of market volatilities on Sure Tech and Direct Capital 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 Sure Tech with a short position of Direct Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sure Tech and Direct Capital.

Diversification Opportunities for Sure Tech and Direct Capital

0.22

Correlation Coefficient

Sure Tech  Direct Capital

Modest diversification

The 3 months correlation between Sure and Direct is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sure Tech Investments LP and Direct Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Capital Inves and Sure Tech 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 Sure Tech Investments LP are associated (or correlated) with Direct Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Capital Inves has no effect on the direction of Sure Tech i.e., Sure Tech and Direct Capital go up and down completely randomly.

Pair Corralation between Sure Tech and Direct Capital

Assuming the 90 days trading horizon Sure Tech Investments LP is expected to generate 0.41 times more return on investment than Direct Capital. However, Sure Tech Investments LP is 2.42 times less risky than Direct Capital. It trades about -0.04 of its potential returns per unit of risk. Direct Capital Investments is currently generating about -0.02 per unit of risk. If you would invest  74,510  in Sure Tech Investments LP on December 27, 2024 and sell it today you would lose (3,540) from holding Sure Tech Investments LP or give up 4.75% of portfolio value over 90 days.

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

Sure Tech Investments LP  vs.  Direct Capital Investments

Sure Tech Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sure Tech Investments LP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sure Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Direct Capital Inves

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Direct Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sure Tech and Direct Capital

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

The idea behind Sure Tech Investments LP and Direct Capital Investments 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.