Correlation Between INNOX Advanced and TES

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

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

Diversification Opportunities for INNOX Advanced and TES

0.6

Correlation Coefficient

INNOX Advanced  TES

Poor diversification

The 3 months correlation between INNOX and TES is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding INNOX Advanced Materials and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co and INNOX Advanced 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 INNOX Advanced Materials 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 INNOX Advanced i.e., INNOX Advanced and TES go up and down completely randomly.

Pair Corralation between INNOX Advanced and TES

Assuming the 90 days trading horizon INNOX Advanced is expected to generate 1.93 times less return on investment than TES. But when comparing it to its historical volatility, INNOX Advanced Materials is 1.21 times less risky than TES. It trades about 0.13 of its potential returns per unit of risk. TES Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,553,475  in TES Co on December 22, 2024 and sell it today you would earn a total of  856,525  from holding TES Co or generate 55.14% return on investment over 90 days.

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

INNOX Advanced Materials  vs.  TES Co

INNOX Advanced Materials

Risk-Adjusted Performance

OK

Over the last 90 days INNOX Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, INNOX Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

TES Co

Risk-Adjusted Performance

Solid

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

Pair Trading with INNOX Advanced and TES

The main advantage of trading using opposite INNOX Advanced and TES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INNOX Advanced 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 INNOX Advanced Materials 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 Global Correlations module to find global opportunities by holding instruments from different markets.