Correlation Between Tong Tai and TMP Steel

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

By analyzing existing cross correlation between Tong Tai Machine Tool and TMP Steel, you can compare the effects of market volatilities on Tong Tai and TMP Steel 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 Tong Tai with a short position of TMP Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Tai and TMP Steel.

Diversification Opportunities for Tong Tai and TMP Steel

0.71

Correlation Coefficient

Tong Tai  TMP Steel

Poor diversification

The 3 months correlation between Tong and TMP is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Tong Tai Machine Tool and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel and Tong Tai 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 Tong Tai Machine Tool are associated (or correlated) with TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Tong Tai i.e., Tong Tai and TMP Steel go up and down completely randomly.

Pair Corralation between Tong Tai and TMP Steel

Assuming the 90 days trading horizon Tong Tai Machine Tool is expected to under-perform the TMP Steel. In addition to that, Tong Tai is 2.62 times more volatile than TMP Steel. It trades about -0.07 of its total potential returns per unit of risk. TMP Steel is currently generating about -0.15 per unit of volatility. If you would invest  3,200  in TMP Steel on September 12, 2024 and sell it today you would lose (350.00) from holding TMP Steel or give up 10.94% of portfolio value over 90 days.

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

Tong Tai Machine Tool  vs.  TMP Steel

Tong Tai Machine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tong Tai Machine Tool has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Tong Tai and TMP Steel

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

The idea behind Tong Tai Machine Tool and TMP Steel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.