Correlation Between Thyssenkrupp and London Security

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

By analyzing existing cross correlation between Thyssenkrupp AG ON and London Security Plc, you can compare the effects of market volatilities on Thyssenkrupp and London Security 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 Thyssenkrupp with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thyssenkrupp and London Security.

Diversification Opportunities for Thyssenkrupp and London Security

0.71

Correlation Coefficient

Thyssenkrupp  London Security

Poor diversification

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

Pair Corralation between Thyssenkrupp and London Security

Assuming the 90 days trading horizon Thyssenkrupp AG ON is expected to generate 3.35 times more return on investment than London Security. However, Thyssenkrupp is 3.35 times more volatile than London Security Plc. It trades about 0.35 of its potential returns per unit of risk. London Security Plc is currently generating about 0.17 per unit of risk. If you would invest  375.00  in Thyssenkrupp AG ON on December 1, 2024 and sell it today you would earn a total of  384.00  from holding Thyssenkrupp AG ON or generate 102.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Thyssenkrupp AG ON  vs.  London Security Plc

Thyssenkrupp AG ON

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thyssenkrupp AG ON are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Thyssenkrupp unveiled solid returns over the last few months and may actually be approaching a breakup point.

London Security Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Security Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, London Security may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Thyssenkrupp and London Security

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

The idea behind Thyssenkrupp AG ON and London Security Plc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.