Correlation Between Finebesteel and Tway Air

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

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

Diversification Opportunities for Finebesteel and Tway Air

-0.33

Correlation Coefficient

Finebesteel  Tway Air

Very good diversification

The 3 months correlation between Finebesteel and Tway is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Finebesteel and Tway Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tway Air and Finebesteel 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 Finebesteel are associated (or correlated) with Tway Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tway Air has no effect on the direction of Finebesteel i.e., Finebesteel and Tway Air go up and down completely randomly.

Pair Corralation between Finebesteel and Tway Air

Assuming the 90 days trading horizon Finebesteel is expected to generate 0.68 times more return on investment than Tway Air. However, Finebesteel is 1.46 times less risky than Tway Air. It trades about 0.11 of its potential returns per unit of risk. Tway Air Co is currently generating about -0.01 per unit of risk. If you would invest  83,800  in Finebesteel on September 13, 2024 and sell it today you would earn a total of  16,500  from holding Finebesteel or generate 19.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Finebesteel  vs.  Tway Air Co

Finebesteel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Finebesteel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Finebesteel sustained solid returns over the last few months and may actually be approaching a breakup point.

Tway Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tway Air Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tway Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Finebesteel and Tway Air

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

The idea behind Finebesteel and Tway Air 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.