Correlation Between Ducommun Incorporated and Park Electrochemical
Can any of the company-specific risk be diversified away by investing in both Ducommun Incorporated and Park Electrochemical 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 Ducommun Incorporated and Park Electrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ducommun Incorporated and Park Electrochemical, you can compare the effects of market volatilities on Ducommun Incorporated and Park Electrochemical 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 Ducommun Incorporated with a short position of Park Electrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ducommun Incorporated and Park Electrochemical.
Diversification Opportunities for Ducommun Incorporated and Park Electrochemical
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ducommun and Park is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ducommun Incorporated and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical and Ducommun Incorporated 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 Ducommun Incorporated are associated (or correlated) with Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Ducommun Incorporated i.e., Ducommun Incorporated and Park Electrochemical go up and down completely randomly.
Pair Corralation between Ducommun Incorporated and Park Electrochemical
Considering the 90-day investment horizon Ducommun Incorporated is expected to generate 1.47 times less return on investment than Park Electrochemical. In addition to that, Ducommun Incorporated is 1.06 times more volatile than Park Electrochemical. It trades about 0.04 of its total potential returns per unit of risk. Park Electrochemical is currently generating about 0.06 per unit of volatility. If you would invest 924.00 in Park Electrochemical on February 1, 2024 and sell it today you would earn a total of 503.00 from holding Park Electrochemical or generate 54.44% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Ducommun Incorporated vs. Park Electrochemical
Performance |
Timeline |
Ducommun Incorporated |
Park Electrochemical |
Ducommun Incorporated and Park Electrochemical Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ducommun Incorporated and Park Electrochemical
The main advantage of trading using opposite Ducommun Incorporated and Park Electrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ducommun Incorporated position performs unexpectedly, Park Electrochemical 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 Park Electrochemical will offset losses from the drop in Park Electrochemical's long position.The idea behind Ducommun Incorporated and Park Electrochemical 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.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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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