Correlation Between Doman Building and Lycos Energy

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

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

Diversification Opportunities for Doman Building and Lycos Energy

-0.32

Correlation Coefficient

Doman Building  Lycos Energy

Very good diversification

The 3 months correlation between Doman and Lycos is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Doman Building Materials and Lycos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lycos Energy and Doman Building 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 Doman Building Materials are associated (or correlated) with Lycos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lycos Energy has no effect on the direction of Doman Building i.e., Doman Building and Lycos Energy go up and down completely randomly.

Pair Corralation between Doman Building and Lycos Energy

Assuming the 90 days trading horizon Doman Building Materials is expected to under-perform the Lycos Energy. But the stock apears to be less risky and, when comparing its historical volatility, Doman Building Materials is 2.21 times less risky than Lycos Energy. The stock trades about -0.2 of its potential returns per unit of risk. The Lycos Energy is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  273.00  in Lycos Energy on September 20, 2024 and sell it today you would lose (18.00) from holding Lycos Energy or give up 6.59% of portfolio value over 90 days.

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

Doman Building Materials  vs.  Lycos Energy

Doman Building Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Doman Building Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Doman Building displayed solid returns over the last few months and may actually be approaching a breakup point.

Lycos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lycos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Doman Building and Lycos Energy

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

The idea behind Doman Building Materials and Lycos Energy 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.