Correlation Between Dana and Lear
Can any of the company-specific risk be diversified away by investing in both Dana and Lear 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 Dana and Lear into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dana Inc and Lear Corporation, you can compare the effects of market volatilities on Dana and Lear 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 Dana with a short position of Lear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dana and Lear.
Diversification Opportunities for Dana and Lear
Very poor diversification
The 3 months correlation between Dana and Lear is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dana Inc and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear and Dana 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 Dana Inc are associated (or correlated) with Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of Dana i.e., Dana and Lear go up and down completely randomly.
Pair Corralation between Dana and Lear
Considering the 90-day investment horizon Dana Inc is expected to under-perform the Lear. In addition to that, Dana is 1.56 times more volatile than Lear Corporation. It trades about -0.05 of its total potential returns per unit of risk. Lear Corporation is currently generating about -0.06 per unit of volatility. If you would invest 13,057 in Lear Corporation on August 26, 2024 and sell it today you would lose (3,268) from holding Lear Corporation or give up 25.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dana Inc vs. Lear Corp.
Performance |
| Timeline |
| Dana Inc |
| Lear |
Dana and Lear Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dana and Lear
The main advantage of trading using opposite Dana and Lear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dana position performs unexpectedly, Lear 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 Lear will offset losses from the drop in Lear's long position.The idea behind Dana Inc and Lear Corporation 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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