Correlation Between DENT and Numeraire

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

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

Diversification Opportunities for DENT and Numeraire

0.93

Correlation Coefficient

DENT  Numeraire

Almost no diversification

The 3 months correlation between DENT and Numeraire is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding DENT and Numeraire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numeraire and DENT 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 DENT are associated (or correlated) with Numeraire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numeraire has no effect on the direction of DENT i.e., DENT and Numeraire go up and down completely randomly.

Pair Corralation between DENT and Numeraire

Assuming the 90 days trading horizon DENT is expected to generate 0.97 times more return on investment than Numeraire. However, DENT is 1.04 times less risky than Numeraire. It trades about 0.26 of its potential returns per unit of risk. Numeraire is currently generating about 0.17 per unit of risk. If you would invest  0.07  in DENT on September 2, 2024 and sell it today you would earn a total of  0.08  from holding DENT or generate 112.77% return on investment over 90 days.

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

DENT  vs.  Numeraire

DENT

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Numeraire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Numeraire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Numeraire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENT and Numeraire

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

The idea behind DENT and Numeraire 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.