Correlation Between DENT and Radworks

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

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

Diversification Opportunities for DENT and Radworks

0.79

Correlation Coefficient

DENT  Radworks

Poor diversification

The 3 months correlation between DENT and Radworks is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding DENT and Radworks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radworks and DENT 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 DENT are associated (or correlated) with Radworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radworks has no effect on the direction of DENT i.e., DENT and Radworks go up and down completely randomly.

Pair Corralation between DENT and Radworks

Assuming the 90 days trading horizon DENT is expected to generate 1.02 times more return on investment than Radworks. However, DENT is 1.02 times more volatile than Radworks. It trades about -0.19 of its potential returns per unit of risk. Radworks is currently generating about -0.23 per unit of risk. If you would invest  0.19  in DENT on February 7, 2024 and sell it today you would lose (0.06) from holding DENT or give up 29.57% of portfolio value over 90 days.

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

DENT  vs.  Radworks

DENT

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Radworks

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Radworks are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Radworks may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with DENT and Radworks

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

The idea behind DENT and Radworks 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.