Correlation Between MegaStudy and Daou Data

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

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

Diversification Opportunities for MegaStudy and Daou Data

-0.13

Correlation Coefficient

MegaStudy  Daou Data

Good diversification

The 3 months correlation between MegaStudy and Daou is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding MegaStudy Co and Daou Data Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daou Data Corp and MegaStudy 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 MegaStudy Co are associated (or correlated) with Daou Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daou Data Corp has no effect on the direction of MegaStudy i.e., MegaStudy and Daou Data go up and down completely randomly.

Pair Corralation between MegaStudy and Daou Data

Assuming the 90 days trading horizon MegaStudy Co is expected to generate 0.29 times more return on investment than Daou Data. However, MegaStudy Co is 3.5 times less risky than Daou Data. It trades about 0.11 of its potential returns per unit of risk. Daou Data Corp is currently generating about -0.01 per unit of risk. If you would invest  1,120,000  in MegaStudy Co on September 19, 2024 and sell it today you would earn a total of  38,000  from holding MegaStudy Co or generate 3.39% return on investment over 90 days.

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

MegaStudy Co  vs.  Daou Data Corp

MegaStudy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MegaStudy Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, MegaStudy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with MegaStudy and Daou Data

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

The idea behind MegaStudy Co and Daou Data Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.