Correlation Between Standard and Dana

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

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

Diversification Opportunities for Standard and Dana

0.54

Correlation Coefficient

Standard  Dana

Very weak diversification

The 3 months correlation between Standard and Dana is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Dana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Inc and Standard 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 Standard Motor Products are associated (or correlated) with Dana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Inc has no effect on the direction of Standard i.e., Standard and Dana go up and down completely randomly.

Pair Corralation between Standard and Dana

Considering the 90-day investment horizon Standard is expected to generate 8.58 times less return on investment than Dana. But when comparing it to its historical volatility, Standard Motor Products is 1.54 times less risky than Dana. It trades about 0.06 of its potential returns per unit of risk. Dana Inc is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,192  in Dana Inc on February 12, 2024 and sell it today you would earn a total of  151.00  from holding Dana Inc or generate 12.67% return on investment over 90 days.

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

Standard Motor Products  vs.  Dana Inc

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Dana Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dana Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dana is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Standard and Dana

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

The idea behind Standard Motor Products and Dana Inc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.