Correlation Between TL and Stic Investments

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

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

Diversification Opportunities for TL and Stic Investments

-0.33

Correlation Coefficient

TL  Stic Investments

Very good diversification

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

Pair Corralation between TL and Stic Investments

Assuming the 90 days trading horizon TL Co is expected to generate 1.44 times more return on investment than Stic Investments. However, TL is 1.44 times more volatile than Stic Investments. It trades about 0.09 of its potential returns per unit of risk. Stic Investments is currently generating about 0.05 per unit of risk. If you would invest  6,690,000  in TL Co on December 29, 2024 and sell it today you would earn a total of  990,000  from holding TL Co or generate 14.8% return on investment over 90 days.

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

TL Co  vs.  Stic Investments

TL Co

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TL Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TL sustained solid returns over the last few months and may actually be approaching a breakup point.

Stic Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stic Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Stic Investments may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with TL and Stic Investments

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

The idea behind TL Co and Stic Investments 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.