Correlation Between Dunham Large and Energy Basic

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

By analyzing existing cross correlation between Dunham Large Cap and Energy Basic Materials, you can compare the effects of market volatilities on Dunham Large and Energy Basic 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 Dunham Large with a short position of Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dunham Large and Energy Basic.

Diversification Opportunities for Dunham Large and Energy Basic

0.51

Correlation Coefficient

Dunham Large  Energy Basic

Very weak diversification

The 3 months correlation between Dunham and ENERGY is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dunham Large Cap and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials and Dunham Large 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 Dunham Large Cap are associated (or correlated) with Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Dunham Large i.e., Dunham Large and Energy Basic go up and down completely randomly.

Pair Corralation between Dunham Large and Energy Basic

Assuming the 90 days horizon Dunham Large Cap is expected to generate 0.7 times more return on investment than Energy Basic. However, Dunham Large Cap is 1.43 times less risky than Energy Basic. It trades about 0.19 of its potential returns per unit of risk. Energy Basic Materials is currently generating about 0.05 per unit of risk. If you would invest  1,987  in Dunham Large Cap on September 4, 2024 and sell it today you would earn a total of  149.00  from holding Dunham Large Cap or generate 7.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Dunham Large Cap  vs.  Energy Basic Materials

Dunham Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dunham Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dunham Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Energy Basic Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dunham Large and Energy Basic

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

The idea behind Dunham Large Cap and Energy Basic Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.