Correlation Between Automobile and Digital Power
Can any of the company-specific risk be diversified away by investing in both Automobile and Digital Power 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 Automobile and Digital Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Automobile Pc and Digital Power Communications, you can compare the effects of market volatilities on Automobile and Digital Power 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 Automobile with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automobile and Digital Power.
Diversification Opportunities for Automobile and Digital Power
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Automobile and Digital is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Automobile Pc and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and Automobile 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 Automobile Pc are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of Automobile i.e., Automobile and Digital Power go up and down completely randomly.
Pair Corralation between Automobile and Digital Power
Assuming the 90 days trading horizon Automobile Pc is expected to under-perform the Digital Power. In addition to that, Automobile is 2.23 times more volatile than Digital Power Communications. It trades about -0.02 of its total potential returns per unit of risk. Digital Power Communications is currently generating about -0.04 per unit of volatility. If you would invest 799,000 in Digital Power Communications on August 25, 2024 and sell it today you would lose (19,000) from holding Digital Power Communications or give up 2.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Automobile Pc vs. Digital Power Communications
Performance |
| Timeline |
| Automobile Pc |
| Digital Power Commun |
Automobile and Digital Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automobile and Digital Power
The main advantage of trading using opposite Automobile and Digital Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automobile position performs unexpectedly, Digital Power 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 Digital Power will offset losses from the drop in Digital Power's long position.| Automobile vs. Busan Industrial Co | Automobile vs. Busan Ind | Automobile vs. Mirae Asset Daewoo | Automobile vs. UNISEM Co |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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