Correlation Between DATA and DGB
Can any of the company-specific risk be diversified away by investing in both DATA and DGB 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 DATA and DGB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DATA and DGB, you can compare the effects of market volatilities on DATA and DGB 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 DATA with a short position of DGB. Check out your portfolio center. Please also check ongoing floating volatility patterns of DATA and DGB.
Diversification Opportunities for DATA and DGB
Weak diversification
The 3 months correlation between DATA and DGB is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding DATA and DGB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB and DATA 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 DATA are associated (or correlated) with DGB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB has no effect on the direction of DATA i.e., DATA and DGB go up and down completely randomly.
Pair Corralation between DATA and DGB
Assuming the 90 days trading horizon DATA is expected to generate 4.83 times less return on investment than DGB. But when comparing it to its historical volatility, DATA is 1.8 times less risky than DGB. It trades about 0.12 of its potential returns per unit of risk. DGB is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 0.63 in DGB on August 23, 2024 and sell it today you would earn a total of 0.49 from holding DGB or generate 76.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
DATA vs. DGB
Performance |
| Timeline |
| DATA |
| DGB |
DATA and DGB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DATA and DGB
The main advantage of trading using opposite DATA and DGB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DATA position performs unexpectedly, DGB 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 DGB will offset losses from the drop in DGB's long position.The idea behind DATA and DGB 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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