Correlation Between Double Bond and Delta Electronics

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

By analyzing existing cross correlation between Double Bond Chemical and Delta Electronics, you can compare the effects of market volatilities on Double Bond and Delta Electronics 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 Double Bond with a short position of Delta Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Double Bond and Delta Electronics.

Diversification Opportunities for Double Bond and Delta Electronics

0.4

Correlation Coefficient

Double Bond  Delta Electronics

Very weak diversification

The 3 months correlation between Double and Delta is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Double Bond Chemical and Delta Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Electronics and Double Bond 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 Double Bond Chemical are associated (or correlated) with Delta Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Electronics has no effect on the direction of Double Bond i.e., Double Bond and Delta Electronics go up and down completely randomly.

Pair Corralation between Double Bond and Delta Electronics

Assuming the 90 days trading horizon Double Bond is expected to generate 4.8 times less return on investment than Delta Electronics. But when comparing it to its historical volatility, Double Bond Chemical is 1.53 times less risky than Delta Electronics. It trades about 0.02 of its potential returns per unit of risk. Delta Electronics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  33,700  in Delta Electronics on August 31, 2024 and sell it today you would earn a total of  4,700  from holding Delta Electronics or generate 13.95% return on investment over 90 days.

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

Double Bond Chemical  vs.  Delta Electronics

Double Bond Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Double Bond Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Double Bond is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Delta Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Delta Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Delta Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Double Bond and Delta Electronics

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

The idea behind Double Bond Chemical and Delta Electronics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.