Correlation Between Design and RedcapTour

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

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

Diversification Opportunities for Design and RedcapTour

-0.5

Correlation Coefficient

Design  RedcapTour

Very good diversification

The 3 months correlation between Design and RedcapTour is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Design Co and RedcapTour Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RedcapTour and Design 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 Design Co are associated (or correlated) with RedcapTour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RedcapTour has no effect on the direction of Design i.e., Design and RedcapTour go up and down completely randomly.

Pair Corralation between Design and RedcapTour

Assuming the 90 days trading horizon Design Co is expected to under-perform the RedcapTour. In addition to that, Design is 6.68 times more volatile than RedcapTour Co. It trades about -0.01 of its total potential returns per unit of risk. RedcapTour Co is currently generating about 0.01 per unit of volatility. If you would invest  848,108  in RedcapTour Co on September 27, 2024 and sell it today you would earn a total of  35,892  from holding RedcapTour Co or generate 4.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.97%
Values	Daily Returns

Design Co  vs.  RedcapTour Co

Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Design Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

RedcapTour

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RedcapTour Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RedcapTour may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Design and RedcapTour

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

The idea behind Design Co and RedcapTour Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.