Correlation Between Computer Direct and Dan Hotels

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

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

Diversification Opportunities for Computer Direct and Dan Hotels

-0.38

Correlation Coefficient

Computer Direct  Dan Hotels

Very good diversification

The 3 months correlation between Computer and Dan is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Computer Direct and Dan Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dan Hotels and Computer Direct 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 Computer Direct are associated (or correlated) with Dan Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dan Hotels has no effect on the direction of Computer Direct i.e., Computer Direct and Dan Hotels go up and down completely randomly.

Pair Corralation between Computer Direct and Dan Hotels

Assuming the 90 days trading horizon Computer Direct is expected to generate 0.81 times more return on investment than Dan Hotels. However, Computer Direct is 1.23 times less risky than Dan Hotels. It trades about 0.53 of its potential returns per unit of risk. Dan Hotels is currently generating about -0.08 per unit of risk. If you would invest  2,542,944  in Computer Direct on September 20, 2024 and sell it today you would earn a total of  1,267,056  from holding Computer Direct or generate 49.83% return on investment over 90 days.

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

Computer Direct  vs.  Dan Hotels

Computer Direct

Risk-Adjusted Performance

41 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Direct are ranked lower than 41 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Computer Direct sustained solid returns over the last few months and may actually be approaching a breakup point.

Dan Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dan Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Computer Direct and Dan Hotels

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

The idea behind Computer Direct and Dan Hotels 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.