Correlation Between DENT and DGB

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

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

Diversification Opportunities for DENT and DGB

-0.41

Correlation Coefficient

DENT  DGB

Very good diversification

The 3 months correlation between DENT and DGB is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding DENT and DGB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB and DENT 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 DENT are associated (or correlated) with DGB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB has no effect on the direction of DENT i.e., DENT and DGB go up and down completely randomly.

Pair Corralation between DENT and DGB

Assuming the 90 days trading horizon DENT is expected to generate 1.4 times more return on investment than DGB. However, DENT is 1.4 times more volatile than DGB. It trades about 0.3 of its potential returns per unit of risk. DGB is currently generating about 0.13 per unit of risk. If you would invest  0.06  in DENT on February 9, 2025 and sell it today you would earn a total of  0.03  from holding DENT or generate 41.14% return on investment over 90 days.

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

DENT  vs.  DGB

DENT

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT may actually be approaching a critical reversion point that can send shares even higher in June 2025.

DGB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DGB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, DGB exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENT and DGB

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

The idea behind DENT and DGB 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.