Correlation Between TRON and DGD

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

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

Diversification Opportunities for TRON and DGD

0.49

Correlation Coefficient

TRON  DGD

Very weak diversification

The 3 months correlation between TRON and DGD is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding TRON and DGD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGD and TRON 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 TRON are associated (or correlated) with DGD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGD has no effect on the direction of TRON i.e., TRON and DGD go up and down completely randomly.

Pair Corralation between TRON and DGD

Assuming the 90 days trading horizon TRON is expected to generate 1.52 times more return on investment than DGD. However, TRON is 1.52 times more volatile than DGD. It trades about 0.0 of its potential returns per unit of risk. DGD is currently generating about -0.03 per unit of risk. If you would invest  25.00  in TRON on December 28, 2024 and sell it today you would lose (1.00) from holding TRON or give up 4.0% of portfolio value over 90 days.

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

TRON  vs.  DGD

TRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TRON is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

DGD

Risk-Adjusted Performance

Very Weak

Over the last 90 days DGD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, DGD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with TRON and DGD

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

The idea behind TRON and DGD 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.