Correlation Between TK Chemical and SIMMTECH

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

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

Diversification Opportunities for TK Chemical and SIMMTECH

0.08

Correlation Coefficient

TK Chemical  SIMMTECH

Significant diversification

The 3 months correlation between 104480 and SIMMTECH is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding TK Chemical and SIMMTECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMMTECH and TK Chemical 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 TK Chemical are associated (or correlated) with SIMMTECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMMTECH has no effect on the direction of TK Chemical i.e., TK Chemical and SIMMTECH go up and down completely randomly.

Pair Corralation between TK Chemical and SIMMTECH

Assuming the 90 days trading horizon TK Chemical is expected to generate 5.34 times less return on investment than SIMMTECH. But when comparing it to its historical volatility, TK Chemical is 1.29 times less risky than SIMMTECH. It trades about 0.05 of its potential returns per unit of risk. SIMMTECH Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,100,009  in SIMMTECH Co on December 3, 2024 and sell it today you would earn a total of  919,991  from holding SIMMTECH Co or generate 83.63% return on investment over 90 days.

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

TK Chemical  vs.  SIMMTECH Co

TK Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TK Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TK Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

SIMMTECH

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SIMMTECH Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SIMMTECH sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TK Chemical and SIMMTECH

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

The idea behind TK Chemical and SIMMTECH 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 Transaction History module to view history of all your transactions and understand their impact on performance.