Correlation Between TRAINLINE PLC and DIeteren Group

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

By analyzing existing cross correlation between TRAINLINE PLC LS and DIeteren Group SA, you can compare the effects of market volatilities on TRAINLINE PLC and DIeteren Group 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 TRAINLINE PLC with a short position of DIeteren Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAINLINE PLC and DIeteren Group.

Diversification Opportunities for TRAINLINE PLC and DIeteren Group

0.62

Correlation Coefficient

TRAINLINE PLC  DIeteren Group

Poor diversification

The 3 months correlation between TRAINLINE and DIeteren is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding TRAINLINE PLC LS and DIeteren Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIeteren Group SA and TRAINLINE PLC 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 TRAINLINE PLC LS are associated (or correlated) with DIeteren Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIeteren Group SA has no effect on the direction of TRAINLINE PLC i.e., TRAINLINE PLC and DIeteren Group go up and down completely randomly.

Pair Corralation between TRAINLINE PLC and DIeteren Group

Assuming the 90 days trading horizon TRAINLINE PLC is expected to generate 3.84 times less return on investment than DIeteren Group. But when comparing it to its historical volatility, TRAINLINE PLC LS is 3.07 times less risky than DIeteren Group. It trades about 0.19 of its potential returns per unit of risk. DIeteren Group SA is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  12,824  in DIeteren Group SA on September 23, 2024 and sell it today you would earn a total of  3,166  from holding DIeteren Group SA or generate 24.69% return on investment over 90 days.

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

TRAINLINE PLC LS  vs.  DIeteren Group SA

TRAINLINE PLC LS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAINLINE PLC LS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAINLINE PLC reported solid returns over the last few months and may actually be approaching a breakup point.

DIeteren Group SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIeteren Group SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, DIeteren Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRAINLINE PLC and DIeteren Group

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

The idea behind TRAINLINE PLC LS and DIeteren Group SA 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.