Correlation Between Dana Large and Dana Small

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

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

Diversification Opportunities for Dana Large and Dana Small

0.9

Correlation Coefficient

Dana Large  Dana Small

Almost no diversification

The 3 months correlation between Dana and Dana is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dana Large Cap and Dana Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Small Cap and Dana Large 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 Dana Large Cap are associated (or correlated) with Dana Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Small Cap has no effect on the direction of Dana Large i.e., Dana Large and Dana Small go up and down completely randomly.

Pair Corralation between Dana Large and Dana Small

Assuming the 90 days horizon Dana Large Cap is expected to generate 0.62 times more return on investment than Dana Small. However, Dana Large Cap is 1.63 times less risky than Dana Small. It trades about 0.16 of its potential returns per unit of risk. Dana Small Cap is currently generating about 0.07 per unit of risk. If you would invest  2,510  in Dana Large Cap on September 14, 2024 and sell it today you would earn a total of  193.00  from holding Dana Large Cap or generate 7.69% return on investment over 90 days.

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

Dana Large Cap  vs.  Dana Small Cap

Dana Large Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Large Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Dana Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dana Small Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dana Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Dana Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dana Large and Dana Small

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

The idea behind Dana Large Cap and Dana Small Cap 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.