Correlation Between DKargo and MNW

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

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

Diversification Opportunities for DKargo and MNW

0.81

Correlation Coefficient

DKargo  MNW

Very poor diversification

The 3 months correlation between DKargo and MNW is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding dKargo and MNW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MNW and DKargo 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 dKargo are associated (or correlated) with MNW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MNW has no effect on the direction of DKargo i.e., DKargo and MNW go up and down completely randomly.

Pair Corralation between DKargo and MNW

Assuming the 90 days trading horizon dKargo is expected to generate 0.81 times more return on investment than MNW. However, dKargo is 1.24 times less risky than MNW. It trades about -0.1 of its potential returns per unit of risk. MNW is currently generating about -0.14 per unit of risk. If you would invest  3.53  in dKargo on January 30, 2024 and sell it today you would lose (0.42) from holding dKargo or give up 11.9% of portfolio value over 90 days.

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

dKargo  vs.  MNW

dKargo

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in dKargo are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DKargo may actually be approaching a critical reversion point that can send shares even higher in May 2024.

MNW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MNW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MNW is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with DKargo and MNW

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

The idea behind dKargo and MNW 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.