Correlation Between Cool and Danaos
Can any of the company-specific risk be diversified away by investing in both Cool and Danaos 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 Cool and Danaos into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cool Company and Danaos, you can compare the effects of market volatilities on Cool and Danaos 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 Cool with a short position of Danaos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cool and Danaos.
Diversification Opportunities for Cool and Danaos
Average diversification
The 3 months correlation between Cool and Danaos is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Cool Company and Danaos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danaos and Cool 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 Cool Company are associated (or correlated) with Danaos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danaos has no effect on the direction of Cool i.e., Cool and Danaos go up and down completely randomly.
Pair Corralation between Cool and Danaos
Given the investment horizon of 90 days Cool Company is expected to under-perform the Danaos. In addition to that, Cool is 1.68 times more volatile than Danaos. It trades about -0.08 of its total potential returns per unit of risk. Danaos is currently generating about 0.0 per unit of volatility. If you would invest 8,199 in Danaos on August 28, 2024 and sell it today you would lose (113.00) from holding Danaos or give up 1.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cool Company vs. Danaos
Performance |
| Timeline |
| Cool Company |
| Danaos |
Cool and Danaos Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cool and Danaos
The main advantage of trading using opposite Cool and Danaos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cool position performs unexpectedly, Danaos 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 Danaos will offset losses from the drop in Danaos' long position.The idea behind Cool Company and Danaos 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.| Danaos vs. Genco Shipping Trading | Danaos vs. Costamare | Danaos vs. Ardmore Shpng | Danaos vs. Global Ship Lease |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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