Correlation Between General Engineering and Diamond Building

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Can any of the company-specific risk be diversified away by investing in both General Engineering and Diamond Building 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 General Engineering and Diamond Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Engineering Public and Diamond Building Products, you can compare the effects of market volatilities on General Engineering and Diamond Building 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 General Engineering with a short position of Diamond Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Engineering and Diamond Building.

Diversification Opportunities for General Engineering and Diamond Building

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between General and Diamond is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Engineering Public and Diamond Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Building Products and General Engineering 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 General Engineering Public are associated (or correlated) with Diamond Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Building Products has no effect on the direction of General Engineering i.e., General Engineering and Diamond Building go up and down completely randomly.

Pair Corralation between General Engineering and Diamond Building

Assuming the 90 days trading horizon General Engineering Public is expected to under-perform the Diamond Building. In addition to that, General Engineering is 12.87 times more volatile than Diamond Building Products. It trades about -0.13 of its total potential returns per unit of risk. Diamond Building Products is currently generating about -0.24 per unit of volatility. If you would invest  770.00  in Diamond Building Products on September 24, 2024 and sell it today you would lose (20.00) from holding Diamond Building Products or give up 2.6% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

General Engineering Public  vs.  Diamond Building Products

 Performance 
       Timeline  
General Engineering 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days General Engineering Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
Diamond Building Products 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Diamond Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

General Engineering and Diamond Building Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Engineering and Diamond Building

The main advantage of trading using opposite General Engineering and Diamond Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Engineering position performs unexpectedly, Diamond Building 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 Diamond Building will offset losses from the drop in Diamond Building's long position.
The idea behind General Engineering Public and Diamond Building Products 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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