Correlation Between DENT and WGRT
Can any of the company-specific risk be diversified away by investing in both DENT and WGRT 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 DENT and WGRT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DENT and WGRT, you can compare the effects of market volatilities on DENT and WGRT 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 DENT with a short position of WGRT. Check out your portfolio center. Please also check ongoing floating volatility patterns of DENT and WGRT.
Diversification Opportunities for DENT and WGRT
Very good diversification
The 3 months correlation between DENT and WGRT is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding DENT and WGRT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WGRT and DENT 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 DENT are associated (or correlated) with WGRT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WGRT has no effect on the direction of DENT i.e., DENT and WGRT go up and down completely randomly.
Pair Corralation between DENT and WGRT
Assuming the 90 days trading horizon DENT is expected to generate 4.84 times less return on investment than WGRT. But when comparing it to its historical volatility, DENT is 5.74 times less risky than WGRT. It trades about 0.01 of its potential returns per unit of risk. WGRT is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1.37 in WGRT on August 27, 2024 and sell it today you would lose (1.30) from holding WGRT or give up 95.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
DENT vs. WGRT
Performance |
| Timeline |
| DENT |
| WGRT |
DENT and WGRT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DENT and WGRT
The main advantage of trading using opposite DENT and WGRT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DENT position performs unexpectedly, WGRT 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 WGRT will offset losses from the drop in WGRT's long position.The idea behind DENT and WGRT 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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