Correlation Between Diamond Offshore and General Dynamics

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

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

Diversification Opportunities for Diamond Offshore and General Dynamics

0.71

Correlation Coefficient

Diamond Offshore  General Dynamics

Poor diversification

The 3 months correlation between Diamond and General is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Offshore Drilling and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Diamond Offshore 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 Diamond Offshore Drilling are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Diamond Offshore i.e., Diamond Offshore and General Dynamics go up and down completely randomly.

Pair Corralation between Diamond Offshore and General Dynamics

Allowing for the 90-day total investment horizon Diamond Offshore Drilling is expected to under-perform the General Dynamics. In addition to that, Diamond Offshore is 1.53 times more volatile than General Dynamics. It trades about -0.01 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.04 per unit of volatility. If you would invest  27,761  in General Dynamics on January 25, 2024 and sell it today you would earn a total of  246.00  from holding General Dynamics or generate 0.89% return on investment over 90 days.

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

Diamond Offshore Drilling  vs.  General Dynamics

Diamond Offshore Drilling

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Diamond Offshore is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

General Dynamics

Risk-Adjusted Performance

8 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Diamond Offshore and General Dynamics

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

The idea behind Diamond Offshore Drilling and General Dynamics 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.