Correlation Between Daily Journal and Indigo Books

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

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

Diversification Opportunities for Daily Journal and Indigo Books

0.06

Correlation Coefficient

Daily Journal  Indigo Books

Significant diversification

The 3 months correlation between Daily and Indigo is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Daily Journal Corp and Indigo Books Music in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indigo Books Music and Daily Journal 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 Daily Journal Corp are associated (or correlated) with Indigo Books. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indigo Books Music has no effect on the direction of Daily Journal i.e., Daily Journal and Indigo Books go up and down completely randomly.

Pair Corralation between Daily Journal and Indigo Books

Given the investment horizon of 90 days Daily Journal is expected to generate 24.55 times less return on investment than Indigo Books. But when comparing it to its historical volatility, Daily Journal Corp is 1.25 times less risky than Indigo Books. It trades about 0.01 of its potential returns per unit of risk. Indigo Books Music is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  149.00  in Indigo Books Music on March 16, 2024 and sell it today you would earn a total of  33.00  from holding Indigo Books Music or generate 22.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Daily Journal Corp  vs.  Indigo Books Music

Daily Journal Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Indigo Books Music

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Indigo Books Music has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak fundamental drivers, Indigo Books reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daily Journal and Indigo Books

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

The idea behind Daily Journal Corp and Indigo Books Music 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.