Correlation Between DENT and WGRT

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

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

Diversification Opportunities for DENT and WGRT

0.3

Correlation Coefficient

DENT  WGRT

Weak diversification

The 3 months correlation between DENT and WGRT is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding DENT and WGRT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WGRT 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 WGRT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WGRT has no effect on the direction of DENT i.e., DENT and WGRT go up and down completely randomly.

Pair Corralation between DENT and WGRT

Assuming the 90 days trading horizon DENT is expected to under-perform the WGRT. In addition to that, DENT is 3.42 times more volatile than WGRT. It trades about -0.19 of its total potential returns per unit of risk. WGRT is currently generating about -0.07 per unit of volatility. If you would invest  1.37  in WGRT on February 7, 2024 and sell it today you would lose (0.05) from holding WGRT or give up 3.65% of portfolio value over 90 days.

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

DENT  vs.  WGRT

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.

WGRT

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WGRT are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, WGRT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENT and WGRT

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

The idea behind DENT and WGRT 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.