Correlation Between Diplomat Holdings and Globrands

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

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

Diversification Opportunities for Diplomat Holdings and Globrands

0.98

Correlation Coefficient

Diplomat Holdings  Globrands

Almost no diversification

The 3 months correlation between Diplomat and Globrands is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Diplomat Holdings and Globrands Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globrands Group and Diplomat Holdings 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 Diplomat Holdings are associated (or correlated) with Globrands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globrands Group has no effect on the direction of Diplomat Holdings i.e., Diplomat Holdings and Globrands go up and down completely randomly.

Pair Corralation between Diplomat Holdings and Globrands

Assuming the 90 days trading horizon Diplomat Holdings is expected to generate 1.64 times more return on investment than Globrands. However, Diplomat Holdings is 1.64 times more volatile than Globrands Group. It trades about 0.47 of its potential returns per unit of risk. Globrands Group is currently generating about 0.31 per unit of risk. If you would invest  315,001  in Diplomat Holdings on September 14, 2024 and sell it today you would earn a total of  182,299  from holding Diplomat Holdings or generate 57.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.87%
Values	Daily Returns

Diplomat Holdings  vs.  Globrands Group

Diplomat Holdings

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Diplomat Holdings are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Diplomat Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Globrands Group

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Globrands Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Globrands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diplomat Holdings and Globrands

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

The idea behind Diplomat Holdings and Globrands Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.