Correlation Between Dave and National Instruments

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

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

Diversification Opportunities for Dave and National Instruments

0.81

Correlation Coefficient

Dave  National Instruments

Very poor diversification

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

Pair Corralation between Dave and National Instruments

Given the investment horizon of 90 days Dave Inc is expected to generate 3.4 times more return on investment than National Instruments. However, Dave is 3.4 times more volatile than National Instruments. It trades about 0.05 of its potential returns per unit of risk. National Instruments is currently generating about 0.12 per unit of risk. If you would invest  2,304  in Dave Inc on January 25, 2024 and sell it today you would earn a total of  1,987  from holding Dave Inc or generate 86.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	70.77%
Values	Daily Returns

Dave Inc  vs.  National Instruments

Dave Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Dave exhibited solid returns over the last few months and may actually be approaching a breakup point.

National Instruments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Instruments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, National Instruments is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Dave and National Instruments

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

The idea behind Dave Inc and National Instruments 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.