Correlation Between Danel and Arad

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

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

Diversification Opportunities for Danel and Arad

-0.16

Correlation Coefficient

Danel  Arad

Good diversification

The 3 months correlation between Danel and Arad is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Danel and Arad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad and Danel 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 Danel are associated (or correlated) with Arad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad has no effect on the direction of Danel i.e., Danel and Arad go up and down completely randomly.

Pair Corralation between Danel and Arad

Assuming the 90 days trading horizon Danel is expected to generate 0.92 times more return on investment than Arad. However, Danel is 1.09 times less risky than Arad. It trades about -0.05 of its potential returns per unit of risk. Arad is currently generating about -0.07 per unit of risk. If you would invest  3,410,000  in Danel on January 30, 2024 and sell it today you would lose (50,000) from holding Danel or give up 1.47% of portfolio value over 90 days.

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

Danel  vs.  Arad

Danel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Danel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Danel may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Arad

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Danel and Arad

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

The idea behind Danel and Arad 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.