Correlation Between Direct Capital and Baran
Can any of the company-specific risk be diversified away by investing in both Direct Capital and Baran 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 Direct Capital and Baran into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direct Capital Investments and Baran Group, you can compare the effects of market volatilities on Direct Capital and Baran 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 Direct Capital with a short position of Baran. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Capital and Baran.
Diversification Opportunities for Direct Capital and Baran
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direct and Baran is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Direct Capital Investments and Baran Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baran Group and Direct Capital 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 Direct Capital Investments are associated (or correlated) with Baran. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baran Group has no effect on the direction of Direct Capital i.e., Direct Capital and Baran go up and down completely randomly.
Pair Corralation between Direct Capital and Baran
Assuming the 90 days trading horizon Direct Capital Investments is expected to generate 3.65 times more return on investment than Baran. However, Direct Capital is 3.65 times more volatile than Baran Group. It trades about 0.12 of its potential returns per unit of risk. Baran Group is currently generating about -0.09 per unit of risk. If you would invest 130,000 in Direct Capital Investments on February 4, 2024 and sell it today you would earn a total of 11,100 from holding Direct Capital Investments or generate 8.54% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Direct Capital Investments vs. Baran Group
Performance |
Timeline |
Direct Capital Inves |
Baran Group |
Direct Capital and Baran Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Direct Capital and Baran
The main advantage of trading using opposite Direct Capital and Baran positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Capital position performs unexpectedly, Baran 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 Baran will offset losses from the drop in Baran's long position.Direct Capital vs. Nice | Direct Capital vs. Bank Leumi Le Israel | Direct Capital vs. ICL Israel Chemicals | Direct Capital vs. Mizrahi Tefahot |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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