Correlation Between Western Investment and Diamond Estates

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

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

Diversification Opportunities for Western Investment and Diamond Estates

-0.27

Correlation Coefficient

Western Investment  Diamond Estates

Very good diversification

The 3 months correlation between Western and Diamond is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines and Western 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 Western Investment are associated (or correlated) with Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Western Investment i.e., Western Investment and Diamond Estates go up and down completely randomly.

Pair Corralation between Western Investment and Diamond Estates

Given the investment horizon of 90 days Western Investment is expected to generate 0.93 times more return on investment than Diamond Estates. However, Western Investment is 1.07 times less risky than Diamond Estates. It trades about 0.1 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.14 per unit of risk. If you would invest  42.00  in Western Investment on September 24, 2024 and sell it today you would earn a total of  11.00  from holding Western Investment or generate 26.19% return on investment over 90 days.

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

Western Investment  vs.  Diamond Estates Wines

Western Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Western Investment and Diamond Estates

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

The idea behind Western Investment and Diamond Estates Wines 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 Anywhere module to track or share privately all of your investments from the convenience of any device.