Correlation Between Daou Data and TK Chemical

Can any of the company-specific risk be diversified away by investing in both Daou Data and TK Chemical 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 Daou Data and TK Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daou Data Corp and TK Chemical, you can compare the effects of market volatilities on Daou Data and TK Chemical 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 Daou Data with a short position of TK Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daou Data and TK Chemical.

Diversification Opportunities for Daou Data and TK Chemical

0.56

Correlation Coefficient

Daou Data  TK Chemical

Very weak diversification

The 3 months correlation between Daou and 104480 is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Daou Data Corp and TK Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TK Chemical and Daou 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 Daou Data Corp are associated (or correlated) with TK Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TK Chemical has no effect on the direction of Daou Data i.e., Daou Data and TK Chemical go up and down completely randomly.

Pair Corralation between Daou Data and TK Chemical

Assuming the 90 days trading horizon Daou Data is expected to generate 241.26 times less return on investment than TK Chemical. But when comparing it to its historical volatility, Daou Data Corp is 2.3 times less risky than TK Chemical. It trades about 0.0 of its potential returns per unit of risk. TK Chemical is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  134,800  in TK Chemical on September 22, 2024 and sell it today you would earn a total of  46,800  from holding TK Chemical or generate 34.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Daou Data Corp  vs.  TK Chemical

Daou Data Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daou Data Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Daou Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

TK Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TK Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TK Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daou Data and TK Chemical

The main advantage of trading using opposite Daou Data and TK Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daou Data position performs unexpectedly, TK Chemical 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 TK Chemical will offset losses from the drop in TK Chemical's long position.

The idea behind Daou Data Corp and TK Chemical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.