Correlation Between Stellar and DRA Global

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

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

Diversification Opportunities for Stellar and DRA Global

-0.52

Correlation Coefficient

Stellar  DRA Global

Excellent diversification

The 3 months correlation between Stellar and DRA is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and DRA Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRA Global and Stellar 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 Stellar are associated (or correlated) with DRA Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRA Global has no effect on the direction of Stellar i.e., Stellar and DRA Global go up and down completely randomly.

Pair Corralation between Stellar and DRA Global

Assuming the 90 days trading horizon Stellar is expected to generate 3.31 times more return on investment than DRA Global. However, Stellar is 3.31 times more volatile than DRA Global. It trades about 0.17 of its potential returns per unit of risk. DRA Global is currently generating about 0.03 per unit of risk. If you would invest  10.00  in Stellar on October 26, 2024 and sell it today you would earn a total of  33.00  from holding Stellar or generate 330.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.94%
Values	Daily Returns

Stellar  vs.  DRA Global

Stellar

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stellar are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Stellar exhibited solid returns over the last few months and may actually be approaching a breakup point.

DRA Global

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Stellar and DRA Global

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

The idea behind Stellar and DRA Global 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.