Correlation Between Tower Investments and Dom Development

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

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

Diversification Opportunities for Tower Investments and Dom Development

0.2

Correlation Coefficient

Tower Investments  Dom Development

Modest diversification

The 3 months correlation between Tower and Dom is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Tower Investments SA and Dom Development SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dom Development SA and Tower Investments 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 Tower Investments SA are associated (or correlated) with Dom Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dom Development SA has no effect on the direction of Tower Investments i.e., Tower Investments and Dom Development go up and down completely randomly.

Pair Corralation between Tower Investments and Dom Development

Assuming the 90 days trading horizon Tower Investments is expected to generate 3.44 times less return on investment than Dom Development. In addition to that, Tower Investments is 3.19 times more volatile than Dom Development SA. It trades about 0.01 of its total potential returns per unit of risk. Dom Development SA is currently generating about 0.15 per unit of volatility. If you would invest  18,220  in Dom Development SA on December 29, 2024 and sell it today you would earn a total of  3,280  from holding Dom Development SA or generate 18.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Tower Investments SA  vs.  Dom Development SA

Tower Investments

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Investments SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tower Investments is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Dom Development SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dom Development SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dom Development reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tower Investments and Dom Development

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

The idea behind Tower Investments SA and Dom Development SA 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.