Correlation Between Dreamus and SIMMTECH

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

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

Diversification Opportunities for Dreamus and SIMMTECH

0.61

Correlation Coefficient

Dreamus  SIMMTECH

Poor diversification

The 3 months correlation between Dreamus and SIMMTECH is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dreamus Company and SIMMTECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMMTECH 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 SIMMTECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMMTECH has no effect on the direction of Dreamus i.e., Dreamus and SIMMTECH go up and down completely randomly.

Pair Corralation between Dreamus and SIMMTECH

Assuming the 90 days trading horizon Dreamus Company is expected to generate 1.74 times more return on investment than SIMMTECH. However, Dreamus is 1.74 times more volatile than SIMMTECH Co. It trades about -0.02 of its potential returns per unit of risk. SIMMTECH Co is currently generating about -0.27 per unit of risk. If you would invest  187,400  in Dreamus Company on September 13, 2024 and sell it today you would lose (21,600) from holding Dreamus Company or give up 11.53% of portfolio value over 90 days.

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

Dreamus Company  vs.  SIMMTECH Co

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.

SIMMTECH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIMMTECH Co 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 SIMMTECH

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

The idea behind Dreamus Company and SIMMTECH Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.