Correlation Between Pudgy Penguins and DIA

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

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

Diversification Opportunities for Pudgy Penguins and DIA

0.19

Correlation Coefficient

Pudgy Penguins  DIA

Average diversification

The 3 months correlation between Pudgy and DIA is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Pudgy Penguins and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and Pudgy Penguins 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 Pudgy Penguins are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of Pudgy Penguins i.e., Pudgy Penguins and DIA go up and down completely randomly.

Pair Corralation between Pudgy Penguins and DIA

Assuming the 90 days trading horizon Pudgy Penguins is expected to generate 1.41 times more return on investment than DIA. However, Pudgy Penguins is 1.41 times more volatile than DIA. It trades about 0.26 of its potential returns per unit of risk. DIA is currently generating about 0.1 per unit of risk. If you would invest  0.73  in Pudgy Penguins on April 23, 2025 and sell it today you would earn a total of  2.36  from holding Pudgy Penguins or generate 322.65% return on investment over 90 days.

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

Pudgy Penguins  vs.  DIA

Pudgy Penguins

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pudgy Penguins are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Pudgy Penguins exhibited solid returns over the last few months and may actually be approaching a breakup point.

DIA

Risk-Adjusted Performance

OK

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

Pair Trading with Pudgy Penguins and DIA

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

The idea behind Pudgy Penguins and DIA 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.