Correlation Between DKargo and ME
Can any of the company-specific risk be diversified away by investing in both DKargo and ME 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 DKargo and ME into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between dKargo and ME, you can compare the effects of market volatilities on DKargo and ME 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 DKargo with a short position of ME. Check out your portfolio center. Please also check ongoing floating volatility patterns of DKargo and ME.
Diversification Opportunities for DKargo and ME
Poor diversification
The 3 months correlation between DKargo and ME is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding dKargo and ME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ME and DKargo 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 dKargo are associated (or correlated) with ME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ME has no effect on the direction of DKargo i.e., DKargo and ME go up and down completely randomly.
Pair Corralation between DKargo and ME
Assuming the 90 days trading horizon dKargo is expected to under-perform the ME. In addition to that, DKargo is 1.92 times more volatile than ME. It trades about -0.16 of its total potential returns per unit of risk. ME is currently generating about -0.11 per unit of volatility. If you would invest 0.07 in ME on January 26, 2024 and sell it today you would lose 0.00 from holding ME or give up 6.92% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
dKargo vs. ME
Performance |
Timeline |
dKargo |
ME |
DKargo and ME Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with DKargo and ME
The main advantage of trading using opposite DKargo and ME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DKargo position performs unexpectedly, ME 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 ME will offset losses from the drop in ME's long position.The idea behind dKargo and ME 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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