Correlation Between First Asset and Dynamic Active

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

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

Diversification Opportunities for First Asset and Dynamic Active

0.68

Correlation Coefficient

First Asset  Dynamic Active

Poor diversification

The 3 months correlation between First and Dynamic is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Asset Tech and Dynamic Active Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Global and First Asset 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 First Asset Tech are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Global has no effect on the direction of First Asset i.e., First Asset and Dynamic Active go up and down completely randomly.

Pair Corralation between First Asset and Dynamic Active

Assuming the 90 days trading horizon First Asset is expected to generate 1.34 times less return on investment than Dynamic Active. In addition to that, First Asset is 1.22 times more volatile than Dynamic Active Global. It trades about 0.14 of its total potential returns per unit of risk. Dynamic Active Global is currently generating about 0.23 per unit of volatility. If you would invest  4,141  in Dynamic Active Global on September 5, 2024 and sell it today you would earn a total of  585.00  from holding Dynamic Active Global or generate 14.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

First Asset Tech  vs.  Dynamic Active Global

First Asset Tech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Asset Tech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, First Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dynamic Active Global

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Global are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Dynamic Active displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Asset and Dynamic Active

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

The idea behind First Asset Tech and Dynamic Active Global 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.