Correlation Between TMP Steel and STARLUX Airlines

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

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

Diversification Opportunities for TMP Steel and STARLUX Airlines

0.62

Correlation Coefficient

TMP Steel  STARLUX Airlines

Poor diversification

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

Pair Corralation between TMP Steel and STARLUX Airlines

Assuming the 90 days trading horizon TMP Steel is expected to under-perform the STARLUX Airlines. But the stock apears to be less risky and, when comparing its historical volatility, TMP Steel is 1.19 times less risky than STARLUX Airlines. The stock trades about -0.06 of its potential returns per unit of risk. The STARLUX Airlines Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,745  in STARLUX Airlines Co on September 21, 2024 and sell it today you would earn a total of  50.00  from holding STARLUX Airlines Co or generate 1.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.07%
Values	Daily Returns

TMP Steel  vs.  STARLUX Airlines Co

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 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.

STARLUX Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STARLUX Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, STARLUX Airlines is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with TMP Steel and STARLUX Airlines

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

The idea behind TMP Steel and STARLUX Airlines 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.