Correlation Between Grand Pacific and TMP Steel

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Can any of the company-specific risk be diversified away by investing in both Grand Pacific and TMP Steel 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 Grand Pacific and TMP Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Grand Pacific Petrochemical and TMP Steel, you can compare the effects of market volatilities on Grand Pacific and TMP Steel 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 Grand Pacific with a short position of TMP Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grand Pacific and TMP Steel.

Diversification Opportunities for Grand Pacific and TMP Steel

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Grand and TMP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Grand Pacific Petrochemical and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel and Grand Pacific 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 Grand Pacific Petrochemical are associated (or correlated) with TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Grand Pacific i.e., Grand Pacific and TMP Steel go up and down completely randomly.

Pair Corralation between Grand Pacific and TMP Steel

Assuming the 90 days trading horizon Grand Pacific Petrochemical is expected to under-perform the TMP Steel. But the stock apears to be less risky and, when comparing its historical volatility, Grand Pacific Petrochemical is 2.4 times less risky than TMP Steel. The stock trades about -0.08 of its potential returns per unit of risk. The TMP Steel is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,810  in TMP Steel on October 24, 2024 and sell it today you would lose (75.00) from holding TMP Steel or give up 2.67% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Grand Pacific Petrochemical  vs.  TMP Steel

 Performance 
       Timeline  
Grand Pacific Petroc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Grand Pacific Petrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Grand Pacific is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
TMP Steel 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Grand Pacific and TMP Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Grand Pacific and TMP Steel

The main advantage of trading using opposite Grand Pacific and TMP Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand Pacific position performs unexpectedly, TMP Steel 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 TMP Steel will offset losses from the drop in TMP Steel's long position.
The idea behind Grand Pacific Petrochemical and TMP Steel 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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