Correlation Between Vela Large and Dunham Large

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

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

Diversification Opportunities for Vela Large and Dunham Large

0.81

Correlation Coefficient

Vela Large  Dunham Large

Very poor diversification

The 3 months correlation between Vela and Dunham is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Vela Large Cap and Dunham Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Large Cap and Vela Large 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 Vela Large Cap are associated (or correlated) with Dunham Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Large Cap has no effect on the direction of Vela Large i.e., Vela Large and Dunham Large go up and down completely randomly.

Pair Corralation between Vela Large and Dunham Large

Assuming the 90 days horizon Vela Large Cap is expected to under-perform the Dunham Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vela Large Cap is 1.28 times less risky than Dunham Large. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Dunham Large Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,909  in Dunham Large Cap on December 28, 2024 and sell it today you would earn a total of  24.00  from holding Dunham Large Cap or generate 1.26% return on investment over 90 days.

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

Vela Large Cap  vs.  Dunham Large Cap

Vela Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vela Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vela Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dunham Large Cap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Large Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Dunham Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vela Large and Dunham Large

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

The idea behind Vela Large Cap and Dunham Large Cap 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.