Correlation Between Design and Aurora World

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

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

Diversification Opportunities for Design and Aurora World

-0.25

Correlation Coefficient

Design  Aurora World

Very good diversification

The 3 months correlation between Design and Aurora is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Design Co and Aurora World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora World and Design 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 Design Co are associated (or correlated) with Aurora World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora World has no effect on the direction of Design i.e., Design and Aurora World go up and down completely randomly.

Pair Corralation between Design and Aurora World

Assuming the 90 days trading horizon Design Co is expected to under-perform the Aurora World. In addition to that, Design is 3.67 times more volatile than Aurora World. It trades about -0.13 of its total potential returns per unit of risk. Aurora World is currently generating about 0.11 per unit of volatility. If you would invest  560,000  in Aurora World on September 23, 2024 and sell it today you would earn a total of  50,000  from holding Aurora World or generate 8.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

Design Co  vs.  Aurora World

Design

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Design Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Design sustained solid returns over the last few months and may actually be approaching a breakup point.

Aurora World

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Design and Aurora World

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

The idea behind Design Co and Aurora World 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.