Can any of the company-specific risk be diversified away by investing in both SCOR PK and Dfa Global 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 SCOR PK and Dfa Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SCOR PK and Dfa Global Real, you can compare the effects of market volatilities on SCOR PK and Dfa Global 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 SCOR PK with a short position of Dfa Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCOR PK and Dfa Global.
Diversification Opportunities for SCOR PK and Dfa Global
The 3 months correlation between SCOR and Dfa is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SCOR PK and DFA Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dfa Global Real and SCOR PK 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 SCOR PK are associated (or correlated) with Dfa Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dfa Global Real has no effect on the direction of SCOR PK i.e., SCOR PK and Dfa Global go up and down completely randomly.
Assuming the 90 days horizon SCOR PK is expected to generate 2.54 times more return on investment than Dfa Global. However, SCOR PK is 2.54 times more volatile than Dfa Global Real. It trades about 0.07 of its potential returns per unit of risk. Dfa Global Real is currently generating about -0.01 per unit of risk. If you would invest 208.00 in SCOR PK on September 7, 2023 and sell it today you would earn a total of 91.00 from holding SCOR PK or generate 43.75% return on investment over 90 days.
Over the last 90 days SCOR PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SCOR PK is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Dfa Global Real are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dfa Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite SCOR PK and Dfa Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCOR PK position performs unexpectedly, Dfa Global 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 Dfa Global will offset losses from the drop in Dfa Global's long position.
The idea behind SCOR PK and Dfa Global Real 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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