Correlation Between Discount Investment and Retailors

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

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

Diversification Opportunities for Discount Investment and Retailors

0.66

Correlation Coefficient

Discount Investment  Retailors

Poor diversification

The 3 months correlation between Discount and Retailors is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Discount Investment Corp and Retailors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retailors and Discount Investment 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 Discount Investment Corp are associated (or correlated) with Retailors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retailors has no effect on the direction of Discount Investment i.e., Discount Investment and Retailors go up and down completely randomly.

Pair Corralation between Discount Investment and Retailors

Assuming the 90 days trading horizon Discount Investment Corp is expected to generate 0.95 times more return on investment than Retailors. However, Discount Investment Corp is 1.05 times less risky than Retailors. It trades about 0.33 of its potential returns per unit of risk. Retailors is currently generating about 0.19 per unit of risk. If you would invest  31,880  in Discount Investment Corp on September 17, 2024 and sell it today you would earn a total of  14,680  from holding Discount Investment Corp or generate 46.05% return on investment over 90 days.

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

Discount Investment Corp  vs.  Retailors

Discount Investment Corp

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Discount Investment Corp are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Discount Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Retailors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discount Investment and Retailors

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

The idea behind Discount Investment Corp and Retailors 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.