Correlation Between Direct Capital and Opal Balance

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

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

Diversification Opportunities for Direct Capital and Opal Balance

-0.83

Correlation Coefficient

Direct Capital  Opal Balance

Pay attention - limited upside

The 3 months correlation between Direct and Opal is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Direct Capital Investments and Opal Balance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Opal Balance and Direct Capital 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 Direct Capital Investments are associated (or correlated) with Opal Balance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Opal Balance has no effect on the direction of Direct Capital i.e., Direct Capital and Opal Balance go up and down completely randomly.

Pair Corralation between Direct Capital and Opal Balance

Assuming the 90 days trading horizon Direct Capital Investments is expected to generate 3.85 times more return on investment than Opal Balance. However, Direct Capital is 3.85 times more volatile than Opal Balance. It trades about 0.15 of its potential returns per unit of risk. Opal Balance is currently generating about 0.35 per unit of risk. If you would invest  80,000  in Direct Capital Investments on September 13, 2024 and sell it today you would earn a total of  15,000  from holding Direct Capital Investments or generate 18.75% return on investment over 90 days.

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

Direct Capital Investments  vs.  Opal Balance

Direct Capital Inves

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Opal Balance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Opal Balance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Opal Balance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Capital and Opal Balance

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

The idea behind Direct Capital Investments and Opal Balance 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..