Correlation Between SFA Engineering and TES

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

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

Diversification Opportunities for SFA Engineering and TES

0.68

Correlation Coefficient

SFA Engineering  TES

Poor diversification

The 3 months correlation between SFA and TES is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SFA Engineering and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co and SFA Engineering 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 SFA Engineering are associated (or correlated) with TES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TES Co has no effect on the direction of SFA Engineering i.e., SFA Engineering and TES go up and down completely randomly.

Pair Corralation between SFA Engineering and TES

Assuming the 90 days trading horizon SFA Engineering is expected to generate 1.27 times more return on investment than TES. However, SFA Engineering is 1.27 times more volatile than TES Co. It trades about -0.07 of its potential returns per unit of risk. TES Co is currently generating about -0.14 per unit of risk. If you would invest  2,450,000  in SFA Engineering on September 3, 2024 and sell it today you would lose (320,000) from holding SFA Engineering or give up 13.06% of portfolio value over 90 days.

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

SFA Engineering  vs.  TES Co

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

TES Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TES Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SFA Engineering and TES

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

The idea behind SFA Engineering and TES Co 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.