Correlation Between Dreamus and SFA Engineering

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

By analyzing existing cross correlation between Dreamus Company and SFA Engineering, you can compare the effects of market volatilities on Dreamus and SFA Engineering 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 Dreamus with a short position of SFA Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dreamus and SFA Engineering.

Diversification Opportunities for Dreamus and SFA Engineering

0.32

Correlation Coefficient

Dreamus  SFA Engineering

Weak diversification

The 3 months correlation between Dreamus and SFA is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Dreamus Company and SFA Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFA Engineering and Dreamus 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 Dreamus Company are associated (or correlated) with SFA Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFA Engineering has no effect on the direction of Dreamus i.e., Dreamus and SFA Engineering go up and down completely randomly.

Pair Corralation between Dreamus and SFA Engineering

Assuming the 90 days trading horizon Dreamus Company is expected to generate 0.98 times more return on investment than SFA Engineering. However, Dreamus Company is 1.02 times less risky than SFA Engineering. It trades about 0.06 of its potential returns per unit of risk. SFA Engineering is currently generating about 0.05 per unit of risk. If you would invest  160,200  in Dreamus Company on September 13, 2024 and sell it today you would earn a total of  5,600  from holding Dreamus Company or generate 3.5% return on investment over 90 days.

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

Dreamus Company  vs.  SFA Engineering

Dreamus Company

Risk-Adjusted Performance

0 of 100

Very Weak

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

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dreamus and SFA Engineering

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

The idea behind Dreamus Company and SFA Engineering 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.