Correlation Between Design and MegaStudy

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

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

Diversification Opportunities for Design and MegaStudy

-0.46

Correlation Coefficient

Design  MegaStudy

Very good diversification

The 3 months correlation between Design and MegaStudy is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Design Co and MegaStudy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MegaStudy 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 MegaStudy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MegaStudy has no effect on the direction of Design i.e., Design and MegaStudy go up and down completely randomly.

Pair Corralation between Design and MegaStudy

Assuming the 90 days trading horizon Design Co is expected to generate 19.33 times more return on investment than MegaStudy. However, Design is 19.33 times more volatile than MegaStudy Co. It trades about 0.03 of its potential returns per unit of risk. MegaStudy Co is currently generating about 0.08 per unit of risk. If you would invest  75,100  in Design Co on September 22, 2024 and sell it today you would lose (5,300) from holding Design Co or give up 7.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Design Co  vs.  MegaStudy Co

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.

MegaStudy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MegaStudy Co are ranked lower than 6 (%) 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.

Pair Trading with Design and MegaStudy

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

The idea behind Design Co and MegaStudy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.