Correlation Between TL and System

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

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

Diversification Opportunities for TL and System

-0.22

Correlation Coefficient

TL  System

Very good diversification

The 3 months correlation between TL and System is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding TL Co and System and Application in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on System and Application 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 System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of System and Application has no effect on the direction of TL i.e., TL and System go up and down completely randomly.

Pair Corralation between TL and System

Assuming the 90 days trading horizon TL Co is expected to generate 1.66 times more return on investment than System. However, TL is 1.66 times more volatile than System and Application. It trades about 0.09 of its potential returns per unit of risk. System and Application is currently generating about -0.04 per unit of risk. If you would invest  6,690,000  in TL Co on December 30, 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.  System and Application

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.

System and Application

Risk-Adjusted Performance

Very Weak

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

Pair Trading with TL and System

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

The idea behind TL Co and System and Application 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.