Correlation Between DENT and XMX
Can any of the company-specific risk be diversified away by investing in both DENT and XMX 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 XMX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DENT and XMX, you can compare the effects of market volatilities on DENT and XMX 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 XMX. Check out your portfolio center. Please also check ongoing floating volatility patterns of DENT and XMX.
Diversification Opportunities for DENT and XMX
Poor diversification
The 3 months correlation between DENT and XMX is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding DENT and XMX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XMX 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 XMX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XMX has no effect on the direction of DENT i.e., DENT and XMX go up and down completely randomly.
Pair Corralation between DENT and XMX
Assuming the 90 days trading horizon DENT is expected to under-perform the XMX. In addition to that, DENT is 1.27 times more volatile than XMX. It trades about -0.21 of its total potential returns per unit of risk. XMX is currently generating about -0.07 per unit of volatility. If you would invest 0.00 in XMX on November 10, 2024 and sell it today you would lose 0.00 from holding XMX or give up 11.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
DENT vs. XMX
Performance |
| Timeline |
| DENT |
| XMX |
DENT and XMX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DENT and XMX
The main advantage of trading using opposite DENT and XMX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DENT position performs unexpectedly, XMX 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 XMX will offset losses from the drop in XMX's long position.The idea behind DENT and XMX 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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